The world oil market may be tighter than it appears despite a supply and demand balance pointing to a surplus, the International Energy Agency (IEA) said yesterday, as refineries ramp up processing to meet summer travel demand.
The IEA, which advises industrialised countries, expects global supply to rise by 2.1 million barrels per day this year, up 300,000bpd from the previous forecast. World demand will rise by just 700,000bpd, it said, implying a sizeable surplus.
Despite making those changes, the IEA said rising refinery processing rates to meet summer travel and power-generation demand were tightening the market and the latest, accelerated supply hike from Opec+ on Saturday had not had much effect.
“The decision by Opec+ to further accelerate the unwinding of production cuts failed to move markets in a meaningful way given tighter fundamentals,” the agency said in a monthly report.
“Price indicators also point to a tighter physical oil market than suggested by the hefty surplus in our balances.”
The comments strike a similar tone to the message earlier this week from ministers and executives of Opec nations and bosses of Western oil majors. The output increases are not leading to higher inventories, which shows markets are thirsty for more oil, they said.
On Monday, when traders reacted to Opec+’s decision, oil rose nearly 2 per cent towards $70 a barrel, despite the larger than expected output hike and concerns about the impact of US tariffs. It was trading near $69 yesterday.
As examples of price indicators suggesting a tighter market, the IEA cited strong refining margins and the premium at which oil for immediate delivery is trading to later supply, a structure known as backwardation.
“Prompt time spreads are in steep backwardation and refinery margins remain healthy despite implied stock builds,” it said.
Oil demand typically rises in the Northern Hemisphere summer as people fly and drive more on holidays.
Given rising seasonal demand, refinery crude processing rates will increase by 3.7m bpd from May to August to meet Northern Hemisphere travel demand, the IEA said.
At the same time, a doubling in crude burning in refineries for power generation, typically to meet air conditioning needs, to around 900,000 bpd will further tighten the market, it said.
Nonetheless, the agency said this year’s forecast for global demand growth of 700,000 bpd is the slowest since 2009, excluding 2020 when demand contracted due to the Covid pandemic.
The IEA said that, while it may be too early to say US tariffs are slowing demand, the largest declines in recent data were in countries in the “crosshairs of the tariff turmoil,” citing China, Japan, South Korea, the United States and Mexico.
IEA demand forecasts are at the lower end of the industry range, as the agency expects a faster energy transition than some other forecasters. According to Opec, demand will rise by 1.3m bpd this year – almost double the IEA figure.
Next year, the IEA sees demand growth averaging 720,000 bpd, 20,000 bpd lower than previously thought, with supply growth rising by 1.3m bpd, also implying a surplus.
Meanwhile, Saudi Arabia’s energy ministry said yesterday the kingdom has been fully compliant with its voluntary Opec+ output target, adding that Saudi marketed crude supply in June was 9.352 million barrels per day, in line with the agreed quota.
“While production briefly exceeded supply, the additional volumes were not marketed domestically or internationally but redirected as a contingency measure”, the ministry added in its statement.
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