The International Energy Agency (IEA) cautioned on Tuesday that global demand for crude oil is expected to decrease this year, marking the first decline since the onset of the Covid-19 pandemic six years ago. The decline is attributed to disruptions in the Middle East due to ongoing conflicts, leading to surging prices and production disruptions.
The IEA’s monthly report highlighted that the closure of the Strait of Hormuz and damage to production facilities will result in countries and industries cutting back on oil consumption. The agency anticipates a decline in demand by 1.5 million barrels per day in the second quarter, the most significant drop since the pandemic significantly reduced fuel consumption.
If the situation persists, with the Strait of Hormuz remaining closed, the IEA forecasts a further decrease in demand by an average of five million barrels per day for the remainder of the year, resulting in significant disruptions to energy markets and economies globally.
Overall, global oil demand is projected to fall throughout the year due to the ongoing closure of the Strait of Hormuz and the destruction of energy infrastructure in the Gulf from retaliatory attacks. The IEA has revised its demand forecast, now expecting a drop of 80,000 barrels per day this year, a significant shift from its previous prediction of a growth of 730,000 barrels per day.
The IEA described the current situation as “the largest disruption in history” to the oil market and emphasized the uncertainty surrounding a lasting resolution to the conflict. The agency warned of potential economic consequences if the conflict persists.
As a response to the supply disruptions, governments are implementing measures to conserve oil use, and countries are tapping into crude stock reserves to mitigate the impact of lost Gulf exports. Oil prices have surged, nearly doubling since the conflict began, and remain around $100 per barrel, with refined product prices also escalating.
While some analysts believe that talks could lead to a ceasefire and the reopening of the waterway, the energy market remains cautious amidst ongoing tensions. Kathleen Brooks, research director at XTB, noted that there is a growing sentiment that the conflict may be approaching a resolution, offering hope for a return to stability in the region.