IEA says trade tensions weigh on oil demand, warns of supply surplus
Summary
The International Energy Agency said the macroeconomic conditions underpinning its oil-demand projections have worsened over the past month due to global trade tensions.
The International Energy Agency said the macroeconomic conditions underpinning its oil-demand projections have worsened over the past month due to global trade tensions, and that it sees a bigger-than-anticipated supply surplus if OPEC+ raises output beyond April.
“New U.S. tariffs will clearly act as barriers to global trade and economic growth," the Paris-based agency said. “The lack of clarity due to their on-again off-again nature, combined with the potential for retaliation and escalation, has caused uncertainty to soar."
While it is too early to assess their impact on the real economy, the IEA said a tariff-induced “stagflationary" scenario–typically a combination of poor growth and rising prices that befuddle policymakers’ attempts to intervene–is set to weigh on overall oil-demand growth.
The agency lowered its demand-growth estimates for the fourth quarter of last year and first quarter of this year to around 1.2 million barrels a day. It now estimates global demand to grow by 1.03 million barrels a day from 1.1 million barrels a day previously, reaching 103.9 million barrels a day on average.
Global growth this year is projected to be higher than last year’s, led by China’s petrochemical sector. But the agency’s projections remain substantially lower than OPEC’s, as the cartel currently expects demand to grow by 1.45 million barrels a day.
Meanwhile, global oil supply is still expected to exceed demand. The agency said it now estimates an overhang of around 600,000 barrels a day–higher than last month’s projections–and that an additional 400,000 barrels a day could be added to the market if OPEC+ proceeds to raise output beyond April and compliance among over-producing members continues to be weak.
“Global oil supply is already on the rise," the agency said. “In February, it jumped 240,000 barrels a day as Tengizchevroil ramped up its long-delayed Tengiz expansion project, pushing Kazakh output to all-time highs. Elsewhere, Iran and Venezuela boosted flows ahead of tighter sanctions."
Total supply is forecast to average 104.5 million barrels a day in 2025, with non-OPEC+ producers estimated to add 1.5 million barrels a day of supply.
Thursday’s IEA report comes as Brent crude trades at $71 a barrel, while the U.S. oil gauge, West Texas Intermediate, is around $67 a barrel. Futures are pressured by growing concerns over the chaotic rollout of U.S. tariffs and their impact on the global economy and oil consumption, as well as OPEC+’s decision to start raising output from April.
OPEC+ crude supply rose by 210,000 barrels a day in February, while production from OPEC’s 12 members increased by 40,000 barrels a day, according to the agency’s estimates. The OPEC+ alliance–which pumps more than half of the world’s crude oil–has been withholding barrels for more than two years and is now set to gradually unwind some of its production cuts.
The group is expected to add 138,000 barrels to the market next month, but the IEA said the actual increase might be at only 40,000 barrels a day, as only Saudi Arabia and Algeria have room to raise production from February levels. Other member states have collectively over-produced by 1.2 million barrels a day last month.
Meanwhile, fresh U.S. sanctions on Russia and Iran haven’t yet disrupted crude loadings, and it’s still too early to assess the potential impact of U.S. tariffs on the Canadian or Mexican production outlook, according to the agency.
Venezuelan supply is instead expected to decline from April when Chevron’s license to operate the country expires, and its crude output estimate for the year was lowered by 190,000 barrels a day.
“Risks to the market outlook remain rife and uncertainties abound," the IEA said.
Write to Giulia Petroni at giulia.petroni@wsj.com
