Story
IEA Projects First Annual Oil Demand Drop Since 2020 Amid Mideast Conflict
Summary
The International Energy Agency forecasts global oil demand will fall by 1 million barrels per day this year, the first such decline since the COVID-19 pandemic, citing disruptions from the conflict in the Middle East.
Global oil demand is forecast to decline for the first time since 2020, driven by production and export disruptions from the ongoing conflict in the Middle East, the International Energy Agency (IEA) reported Friday. The agency's latest monthly oil market report projects that worldwide demand will fall by 1 million barrels a day this year compared to the last.
Mideast Tensions Pressure Demand
The IEA attributed the projected contraction primarily to the war between Israel and Iran, which has severely impacted maritime trade through the Persian Gulf. The closure of the Strait of Hormuz has disrupted crude oil and refined product shipments, leading to what the agency called a decline that is "highly skewed in both product and regional terms."
The forecast hinges on a fragile outlook, assuming a ceasefire holds and tanker traffic through the strait gradually resumes. "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 Lowered
The agency also revised its outlook for Russian oil production downward, citing Ukraine's sustained drone attacks on the country's energy infrastructure. The IEA noted that the strikes on refineries, storage, and transport facilities have weakened Russia's production capacity.
AdAs a result, the IEA has lowered its Russian supply forecast:
- For this year: a reduction of 85,000 barrels per day (bpd)
- For next year: a reduction of 150,000 bpd
The agency now expects Russian production to average 8.8 million bpd over the forecast period.
Market Impact
Oil prices were little changed on Friday but were on track for weekly gains as traders assessed the competing forces of a weaker demand forecast against the persistent risk of a wider conflict disrupting crude supplies from the Persian Gulf. The IEA noted that while the global oil market balance looks set to return to a surplus by the end of the year, this depends heavily on the gradual recovery of tanker flows.