The International Energy Agency (IEA) warns that oil price volatility is expected to persist due to the rapid depletion of global oil inventories. The May report indicated that global supply declined by 1.8 million barrels per day in April, escalating total losses since the U.S.-Israel-Iran conflict to 12.8 mb/d. Geopolitical instability, particularly near the Strait of Hormuz, is pressuring markets, with Brent crude trading near $107 per barrel. Additionally, the IEA forecasts a decline in demand, most significantly affecting the petrochemical and aviation sectors. Industry leaders, including Morgan Stanley, concur that the current supply disruption is historically significant.
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The International Energy Agency (IEA) has warned that volatile oil prices are unlikely to stabilize soon, citing record depletion rates in global oil inventories. The latest report highlights significant supply losses, particularly due to geopolitical instability in the Middle East.
Global Supply Declines Amid Geopolitical Tensions
The IEA's May oil market report detailed a notable contraction in global oil supply during April. Key figures from the report include:
April Decline: Global oil supply fell by an additional 1.8 million barrels per day (mb/d) in April.
Cumulative Loss: This brings the total supply reduction to 12.8 mb/d since the conflict involving the U.S. and Israel with Iran began on February 28.
Hormuz Strait Impact: The agency noted that mounting supply losses from the Strait of Hormuz are depleting global inventories at a record pace.
Market Pricing and Forecasts
As of Wednesday, benchmark oil prices reflected this tension:
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Brent Crude: International benchmark Brent futures traded near $107 per barrel.
U.S. Crude: U.S. crude oil futures were reported just above $101 per barrel.
Demand Destruction and Sector Impact
The report also flagged anticipated reductions in demand stemming from the ongoing conflict and broader macroeconomic factors. The IEA forecasts:
Demand Contraction: A contraction of 420 thousand barrels per day by the end of 2026, year-on-year, bringing demand down to 104 million barrels per day.
Most Affected Sectors: The petrochemical and aviation sectors are currently cited as the most impacted areas. Higher prices and a weaker economic environment are expected to further curb fuel usage.
Industry Consensus on Supply Disruption
Industry experts echo the concerns raised by the IEA regarding the scale of the disruption. Morgan Stanley's commodities strategist, Martijn Rats, stated that the current situation represents the largest oil supply disruption in the history of the market. Furthermore, Saudi Aramco CEO Amin Nasser and IEA chief Fatih Birol have independently described the current supply disruption using similar terminology.
