Countries switching to oil for power generation because of high gas prices as well as ongoing heatwaves are causing global oil demand to rise more than previously forecast for this year, the International Energy Agency (IEA) has said.

Oil prices have dropped by $30 per barrel from a peak in June due to growing supplies and "escalating concerns over the deteriorating economic outlook," IEA said in a monthly report.

Meanwhile, prices of natural gas and electricity have jumped to new records, prompting some countries to switch to oil use. "With several regions experiencing blazing heatwaves, the latest data confirm increased oil burn in power generation, especially in Europe and the Middle East but also across Asia," the agency said.

"Fuel switching is also taking place in European industry, including refining," noted the IEA, which advises developed countries on energy policy.

As a result, the IEA raised its demand forecast by 380,000 barrels per day. The world currently consumes around 100 million barrels of oil per day.

Demand is now seen rising by 2.1 million bpd to a total of 99.7 million bpd in 2022. It will reach 101.8 million bpd in 2023, exceeding pre-Covid levels.

The IEA said European oil deliveries are being boosted by "exceptional demand" for heat and power generation and in industry.

The report comes as a European Union plan to cut gas consumption across the 27-nation bloc by 15% aims to cope with the energy price crisis spurred by Russia's war in Ukraine.

EU countries also fear Russia may cut gas supplies during winter in retaliation to Western sanctions over the war.

The IEA said the heatwaves and "the beginning of what may be a major rise in gas-to-oil switching under new EU guidelines in response to uncertainty surrounding gas supply from Russia are augmenting fuel oil and gasoil use."

As of this writing, WTI crude stood at $92.84 while Brent crude was at $98.35. The markets for crude oil and natural gas are substantially different and subject to different fundamental forces.