By Noah Browning

LONDON (Reuters) – Rising demand for oil abruptly reversed course in July and is set to proceed more slowly for the rest of the year due to the spread of the COVID-19 Delta variant, the International Energy Agency said on Thursday.

“Growth for the second half of 2021 has been downgraded more sharply, as new COVID-19 restrictions imposed in several major oil consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the Paris-based IEA said.

“We now estimate that demand fell in July as the rapid spread of the COVID-19 Delta variant undermined deliveries in China, Indonesia and other parts of Asia,” it said in its monthly oil report.

The IEA put the demand slump last month at 120,000 barrels per day (bpd) and predicted growth would be half a million bpd lower in the second half of the year compared to its estimate last month, noting some changes were due to revisions in data.

An output deal reached by the OPEC+ alliance – consisting of the Organization of the Petroleum Exporting Countries and others such as Russia – last month would restore market balance in the near term, the IEA added.

“But the scale could tilt back to surplus in 2022 if OPEC+ continues to undo its cuts and producers not taking part in the deal ramp up in response to higher prices,” it said.

OPEC+, which had introduced output curbs to support prices and ease oversupply, agreed in July to boost output by 400,000 bpd a month starting in August until the rest of a 5.8 million bpd cut is phased out.

The United States on Wednesday called on OPEC+ to boost oil output to tackle rising gasoline prices and aid the global economic recovery. OPEC+ is scheduled to hold a meeting on Sept. 1 to review the situation.

Citing a United Nations report this week saying climate change was spiralling out of control, the IEA said the world needed to urgently move to a carbon neutral world.

“The world oil industry is struggling to find new business models to navigate the energy transition … while still meeting sustained oil demand.”

(Reporting by Noah Browning; editing by Jason Neely)