IEA sees global oil demand falling for first time since Covid, warns of ‘demand destruction’

PARIS, April 14 — Demand for crude oil will likely decline this year for the first time since the Covid pandemic slammed the global economy six years ago, weighed down by Mideast war disruptions, the IEA warned Tuesday.

Surging prices caused by the Strait of Hormuz’s closure and damage to production facilities will force countries and industries to curtail oil use, and “demand destruction will spread as scarcity and higher prices persist”, the International Energy Agency said in its monthly report.

It noted that its forecasts assume a “base case” of oil shipments resuming in May through Hormuz, which Tehran has effectively closed since the US and Israel began bombing Iran on February 28.

This would lead to a decline in demand of 1.5 million barrels per day (bpd) in the second quarter, “the sharpest since Covid-19 slashed fuel consumption”, the agency said.

Overall demand is forecast to have contracted by 800,000 bpd in March and is seen dropping by 2.3 million bpd in April.

But a “protracted case” if the Strait of Hormuz remains closed would lead to persistently high prices that crimp demand by an even higher average of five million bpd through the rest of this year.

“In this case, energy markets and economies around the world need to brace for significant disruptions in the months to come,” the agency warned.

Endgame?

Global oil use is expected to fall over 2026 as a whole as a result of the Hormuz closure and the destruction of energy infrastructure across the Gulf from retaliatory Iranian attacks.

The IEA now sees a demand drop of 80,000 bpd this year, compared with its previous forecast of growth of 730,000 bpd.

It called it “the largest disruption in history” to the market and cautioned that with “the prospects for a lasting negotiated settlement to the conflict still unclear”, the economic pain could be worse.

Already the supply cuts took more than 360 million barrels off the market in March, a figure expected to rise to 440 million barrels for April.

Oil supplies overall plunged to 97 million bpd in March, down by 10.1 million bpd as the Mideast fighting rocked the market.

Oil prices have nearly doubled since the Mideast war began and remain near $100 a barrel, with prices of refined products like petrol and jet fuel rising even higher.

Many governments have already imposed measures to conserve use, but if the fighting continues “energy markets and economies around the world need to brace for significant disruptions in the months to come”.

Countries are also tapping into crude stock reserves to soften the blow from lost Gulf exports, and inventories fell by 85 million barrels overall in March.

IEA executive director Fatih Birol has repeatedly said the agency stands ready to approve the release of more reserves if needed.

But some analysts say energy traders are increasingly betting that neither Iran nor the United States want the war to continue, and are banking on talks producing a ceasefire.

Kathleen Brooks, research director at the investing platform XTB, said that even though tensions are high, “the market is comfortable that this war has entered a new stage, one that will lead to the end of fighting and a pathway to reopening the waterway”. — AFP