Will Oil Prices Rise This Year? IEA Projects Reduced Supply and Increased Demand

The International Energy Agency (IEA) indicated that cold weather and heightened demand from the petrochemical industry have bolstered global oil consumption. Coupled with potential supply cuts, the global oil market could face less oversupply than previously anticipated.

According to the IEA's monthly report released Wednesday, global inventories are projected to rise by 725,000 barrels per day (bpd) by 2025, down from the earlier forecast of 950,000 bpd. The agency also modestly raised its global oil consumption forecasts for 2024 and 2025.

December saw a significant cooling trend in Canada and the northern and central U.S., the Paris-based agency reported. Oil prices have also been buoyed by traders assessing multiple supply risks.

The report highlighted that comprehensive new sanctions imposed by the Biden administration last week could severely disrupt Russian oil supply and distribution. Additionally, the IEA warned that if the incoming Trump administration follows through on its promises of a tougher stance, Iran's oil exports might face further restrictions.

While it is too early to quantify potential supply losses, the agency noted that significant disruptions could compel OPEC+ to continue adjusting its production strategies.

Potential Production Adjustments

Torell Bosoni, head of the IEA's Oil Industry and Markets Division, told Bloomberg Television that, given the risks of supply disruptions in Russia and Iran, OPEC might have room to scale back production cuts. "They've already signaled plans to unwind cuts by 2025," she said.

Supply concerns and winter weather have driven crude prices higher since the start of the year. Brent crude futures hit a five-month high of over  $81 per barrel on Monday.

The report also cautioned that harsh winter weather could disrupt North American oil production, depleting already low inventories at the Cushing oil storage hub in Oklahoma. Developed nations' oil stockpiles are now at their lowest levels since August 2022.

Demand and Supply Outlook

The IEA raised its global oil consumption forecasts for 2024 and 2025 by 100,000 bpd, predicting slightly faster demand growth this year due to improved economic prospects. Global oil demand is projected to grow by 1.05 million bpd in 2024, reaching an average of 104 million bpd.

While demand growth will outpace non-OPEC supply increases, global supply is still expected to rise by 1.5 million bpd in 2024, matching last year's pace. The U.S., Brazil, Canada, Guyana, and Argentina are anticipated to lead the growth.

However, if OPEC+ proceeds with its plan to gradually restore output from the second quarter of this year, the global oversupply could be worse than expected. Saudi Arabia, leading OPEC, plans to increase production by 120,000 bpd each month starting in April but might revisit this strategy in early March.

In December, OPEC+ oil production slightly increased, climbing from 41.4 million bpd in November to 41.67 million bpd. Several member states exceeded their agreed production targets.

On Tuesday, the U.S. Energy Information Administration (EIA) predicted that as OPEC fully restores production and output from the U.S., Canada, and Guyana continues to rise, the global surplus will likely expand further in 2026.