Story
Global Oil Demand to Fall for First Time Since 2020 Amid Mideast Conflict, IEA Says
Summary
The International Energy Agency projects global oil demand will fall by 1 million barrels per day this year, the first annual decline since the COVID-19 pandemic, citing severe disruptions from the conflict in the Middle East.
Global oil demand is projected to decline for the first time since the COVID-19 pandemic, driven by production and export disruptions from the conflict in the Middle East. The International Energy Agency (IEA) said in its latest monthly oil market report that it expects world demand to fall by 1 million barrels a day this year compared to the last.
Mideast Tensions Disrupt Key Waterway
The primary driver for the downgraded forecast is the disruption to oil flows through the Strait of Hormuz, a critical chokepoint for global energy supplies. The IEA noted the contraction is "highly skewed in both product and regional terms" following the strait's closure, which has hampered exports from the Persian Gulf.
The agency's outlook hinges on a fragile assumption that tanker traffic will gradually recover, allowing producers and refiners to resume normal operations. However, the IEA warned that its forecast for the market to return to a surplus by year-end is at risk.
"Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalization in oil markets," the IEA stated in its report.
Russian Supply Outlook Also Trimmed
AdCompounding the supply-side issues, the IEA also lowered its forecast for Russian oil production, citing Ukraine's ongoing drone campaign against the country's energy infrastructure. The attacks on refineries and storage facilities have weakened Russia's output capacity.
The IEA cut its Russian supply outlook for this year by 85,000 barrels per day and for next year by 150,000 bpd. The agency now sees Russian production averaging 8.8 million bpd over the forecast period.
Market Impact
Oil prices have been volatile, posting weekly gains as traders assess the geopolitical risks in the Persian Gulf. The market is currently balancing the potential for a wider conflict that could further disrupt crude supplies against the bearish demand signal from the IEA's report. The forecast suggests that without a resolution to the conflict, energy markets will continue to face significant uncertainty.