International Energy Agency (IEA) on Thursday projected that global crude oil supply may exceed demand by around 1 million barrels per day (mb/d) in 2025 as rising trade tensions and OPEC+ winding down production cuts are fuelling uncertainty which is dampening oil demand growth.
“Risks to the market outlook remain rife and uncertainties abound. Our current balances suggest global oil supply may exceed demand by around 600,000 b/d this year. If OPEC+ extends the unwinding of output cuts beyond April without reining in supply from members currently overproducing versus their targets, another 400,000 b/d could be added to the market,” the IEA said in its monthly oil market report for March 2025.
Equally, the scope and scale of tariffs remains unclear, and with trade negotiations continuing apace, it is still too early to assess the impact on the market outlook, it added.
As per the US Energy Information Administration (EIA), Brent crude oil spot price averaged $75 per barrel in February, $4 a barrel lower than in January and $8 lower than at the same time last year.
Trade tensions
The IEA report pointed out that benchmark crude oil prices fell in February and early March as concerns mounted over outlook for the economy and global oil demand growth amid escalating trade tensions and as OPEC+ announced it would start unwinding production cuts in April.
Against this backdrop, discussions started on the potential for an initial ceasefire and an eventual peace deal in Ukraine. ICE Brent futures declined by $11 per barrel over the past eight weeks, trading near three-year lows around $70 at the time of writing, it added.
“The macroeconomic conditions that underpin our oil demand projections deteriorated over the past month as trade tensions escalated between the US and several other countries. New US tariffs, combined with escalating retaliatory measures, tilted macro risks to the downside,” IEA said.
Recent oil demand data have underwhelmed, and growth estimates for Q4 2024 and Q1 2025 have been marginally downgraded to around 1.2 mb/d, with data for both advanced and developing markets coming in below projections, it added.
Last week, the US EIA in an update to its short-term market outlook said, “The evolving tariff policy has added uncertainty around expectations for global oil demand growth, concerns about which had persistently weighed on oil prices over the last year.”
On the supply side, any potential ceasefire in the Russia-Ukraine conflict could add Russian oil volumes back into the market. Lastly, continued supply growth from producers outside of the OPEC+ agreement, primarily in North and South America, adds additional downward pressure to US EIA’s price forecast in 2026.
Softening prices
US EIA anticipates that global oil inventories will begin to build in July-September quarter of 2025.
It expects that by the 2025-end rising oil supply will mean more oil is being produced globally than is being consumed, leading to inventory accumulation and downward pressure on prices through the remainder of its forecast period.
“As a result, we forecast the Brent crude oil price will fall to $66 per barrel in December 2026, averaging $68 in 2026. Our 2026 Brent price forecast is $2 per barrel higher than we forecast last month, mostly as a result of less crude oil production from OPEC next year than we previously expected, which largely reflects our expectation of less crude oil production from Iran and Venezuela,” it added.
The IEA said the US is currently producing at record highs and is forecast to be the largest source of crude oil supply growth in 2025, followed by Canada, Brazil and Guyana.
Proposed US tariffs on Canada and Mexico, set to take effect on 1 April, may impact flows and prices from the two countries that accounted for roughly 70 per cent of US crude oil imports last year.
“Meanwhile, the latest round of sanctions on Russia and Iran has yet to significantly disrupt loadings, even as some buyers have scaled back purchases,” IEA said.
