The global oil market may be tighter than surface-level figures suggest, the International Energy Agency (IEA) said on Friday, noting that increased refinery throughput to meet surging summer travel and power generation demand is absorbing the supply surge forecast for 2024.
While the IEA projects global oil supply to increase by 2.1 million barrels per day (bpd) this year—300,000 bpd more than previously expected—world oil demand is only expected to grow by 700,000 bpd, pointing on paper to a significant surplus.
However, the IEA’s monthly oil market report suggested that the market is responding more to tight fundamentals than the expected oversupply. “Price indicators also point to a tighter physical oil market than suggested by the hefty surplus in our balances,” the agency said.
It noted that the latest accelerated production hike from OPEC+, announced on Saturday, had little impact on market sentiment, echoing recent comments from OPEC officials and global oil executives who say supply increases have not been translating into inventory growth.
On Monday, in response to the OPEC+ decision, oil prices rose nearly 2%, approaching $70 per barrel, despite wider concerns over escalating U.S. tariffs. Prices hovered around $69 as of Friday.
The IEA pointed to strong refining margins and a sharp backwardation—where oil for immediate delivery trades at a premium to future contracts—as signs of a tight market. “Prompt time spreads are in steep backwardation and refinery margins remain healthy despite implied stock builds,” it added.
Demand for oil typically rises in the Northern Hemisphere summer months as holiday travel picks up. To accommodate this, the IEA expects refinery crude processing to grow by 3.7 million bpd from May to August.
In addition, refinery crude burning for power generation, often used to fuel air conditioning, is expected to double to around 900,000 bpd, placing further pressure on supply.
Still, the IEA reiterated that global demand growth for 2024—projected at 700,000 bpd—would mark the slowest annual increase since 2009, excluding the COVID-driven contraction in 2020.
The agency noted early signs of tariff-related demand weakness, pointing to recent declines in consumption in countries most affected by trade tensions, such as China, Japan, South Korea, the U.S., and Mexico.
The IEA’s forecast remains at the lower end of industry estimates, reflecting its assumption of a faster shift to renewable energy. In contrast, OPEC expects oil demand to grow by 1.3 million bpd in 2024—almost double the IEA’s projection.
Looking ahead to 2025, the IEA predicts demand will grow by an average of 720,000 bpd, slightly down from earlier estimates. Supply growth, on the other hand, is expected to increase by 1.3 million bpd, continuing the theme of projected surplus amid potentially tight market conditions.
