The global oil market is "walking a tightrope" between scarce supply and the possibility of a recession, the International Energy Agency (IEA) said on July 13, with higher prices and worsening economic  conditions already taking a toll on demand.

The cloudy outlook is reflected in volatile trading, with Brent crude falling 7% to below $100 a barrel on July 12 as futures traders worried over an economic contraction, but high physical oil prices still indicate strong demand for now.

"Rarely has the outlook for oil markets been more uncertain. A worsening macroeconomic outlook and fears of recession are weighing on market sentiment, while there are ongoing risks on the supply side," the Paris-based agency said.

"For now, weaker-than-expected oil demand growth in advanced economies and resilient Russian supply" has reduced market tightness, the IEA said in its monthly oil report.

Still, its demand outlook for 2022 was trimmed by just 200,000 bbl/d and is set for an annual rise of 1.7 MMbbl/d and 2.1 MMbbl/d in 2023, when it will reach 101.3 MMbbl/d led by growth in developing countries.

The estimate fell far short of producer group OPEC's estimate for the year of 3.4 MMbbl/d growth on July 12. It was more in line with the U.S. Energy Information Administration's (EIA) estimate of 2.2 MMbbl/d growth.

All organizations reduced their outlooks following Russia's invasion of Ukraine, citing the impact of higher prices and sanctions on economic growth, but the EIA and IEA did so more swiftly and sharply than OPEC.

OPEC producers Saudi Arabia and the UAE will have a limited ability to pump more oil, the IEA warned, with their combined spare production capacity set to fall to 2.2 MMbbl/d in August.

Meanwhile, despite Russian oil exports hitting their lowest levels since last August, the IEA said Russia's export revenue increased by $700 million month on month on higher oil prices.

Noting the profits, which were 40% above last year's average, supported Russia's military operations in Ukraine, the IEA called the situation "untenable."

"Discussions are ongoing to identify a solid market mechanism to ensure effective implementation and enforcement [of a cap on the Russian oil price]," it said.