IEA Projects a Cautious Increase in Global Oil Demand as Economic Uncertainty Looms

Introduction to the IEA's Outlook

The International Energy Agency (IEA) has narrowly lifted its forecast for global oil demand growth in 2025, reflecting a modest uptick from previous estimates. This adjustment comes amidst rising economic uncertainty and trade tensions that threaten to disrupt the oil market. The IEA's latest projections highlight the complex interplay of factors influencing the energy sector, including supply and demand dynamics, geopolitical tensions, and shifting macroeconomic conditions.

Global Oil Demand Growth in 2025

Global oil demand is expected to grow by over 1 million barrels per day (b/d) in 2025, reaching a total of approximately 103.9 million b/d[1]. This increase is a slight improvement from earlier forecasts, which pegged growth at around 1.05 million b/d in January 2025[2]. However, recent data have fallen short of expectations, leading to downward adjustments in demand growth estimates for the fourth quarter of 2024 and the first quarter of 2025[1].

Key Factors Driving Demand Growth:

• Asia's Role: Asia, particularly China, is set to drive nearly 60% of the increase in oil demand. However, China's share of global demand growth has diminished to 19%, a significant drop from the 60% mark over the previous decade. This shift is primarily due to robust growth in the petrochemical sector, while demand for refined fuels reaches a plateau[1][2].
• Emerging Markets: India and other emerging Asian economies are increasingly contributing to the growth in oil demand, stepping into roles previously dominated by China[2].

Economic Uncertainty and Trade Tensions

The global economic landscape is increasingly complex, with macroeconomic risks tilted to the downside. Escalating trade tensions between the U.S. and other countries have introduced significant uncertainty, potentially dampening oil demand. New U.S. tariffs on goods from Canada, Mexico, and China have raised concerns about a trade war, impacting global trade and economic stability[1][4].

Impact of Tariffs on Oil Demand

U.S. tariffs on Canadian and Mexican energy imports could disrupt crude oil flows, as these countries accounted for about 70% of U.S. crude imports in the previous year[5]. Additionally, Chinese goods are now subject to a 20% tariff, further complicating global trade dynamics[4].

Oil Supply Dynamics in 2025

Global oil supply is forecast to rise by approximately 1.6 million b/d in 2025, reaching around 104.5 million b/d[2]. Non-OPEC+ producers, especially those in the Americas, are expected to drive this supply growth. However, OPEC+ producers remain a crucial factor, with plans to begin easing voluntary production cuts from April 2025[4].

OPEC+ Production Adjustments

The OPEC+ alliance has announced plans to unwind 2.2 million b/d of production cuts over an 18-month period starting in April 2025. Despite these plans, the IEA's forecasts are based on the assumption that current production levels will be maintained beyond April. Any significant increase in OPEC+ output could lead to a larger supply surplus, potentially nearing 1 million b/d if all production cuts are unwound[4][5].

Global Refining Activity and Stock Levels

Global crude refining activity has seen fluctuations, with a notable decline in February due to planned and unplanned outages. However, refining throughputs are projected to average 83.3 million b/d in 2025, representing a slight increase from 2024 levels. Non-OECD regions are expected to drive this growth, partially offsetting lower refining activity in OECD countries[1][2].

Key Observations in Refining and Stocks:

• Refining Margins: Refining margins rebounded in February as crude prices fell, improving profitability[1].
• Stock Levels: Global oil stocks experienced a decline in January but rebounded in February due to increased oil on water[1][5].

Market Outlook and Economic Implications

The oil market is facing significant challenges, with economic uncertainty exacerbated by trade tensions. The IEA warns that a "tariff-induced stagflationary scenario" could depress oil demand, despite lower oil prices providing some relief for emerging markets[4].

Implications for Oil Prices

Oil prices have been volatile, responding to shifts in macroeconomic sentiment and trade policy. The prospect of a well-supplied market, combined with potential economic slowdowns, could keep prices in check. Banks such as Goldman Sachs have adjusted their oil price forecasts downward, reflecting increased recession risk and higher price volatility[5].

Conclusion

The IEA's revised forecast for global oil demand growth in 2025 underscores the delicate balance between supply and demand in the oil market. Economic uncertainty, trade tensions, and geopolitical factors are critical variables influencing oil prices and market dynamics. As the global energy landscape continues to evolve, stakeholders will be closely monitoring these developments to navigate the challenges ahead.

With Asia leading demand growth and non-OPEC+ producers driving supply increases, the energy sector remains responsive to economic shifts. The impact of U.S. tariffs and OPEC+ production policies will be crucial in shaping market outcomes through 2025. Amidst these dynamics, resilience and adaptability will be essential for navigating the complexities of the global oil market.

Key Takeaways:

• Global Oil Demand: Expected to grow by over 1 million b/d in 2025, reaching about 103.9 million b/d.
• Economic Uncertainty: Trade tensions and macroeconomic risks are key challenges facing the oil market.
• Supply Dynamics: Non-OPEC+ producers are leading supply growth, with OPEC+ adjustments critical to market balance.
• Market Outlook: Economic conditions and policy decisions will significantly influence oil prices and market stability in 2025.