Oil Surplus Shrinks Again on Sanctions and Demand, IEA Says

The International Energy Agency (IEA) has reported that the global oil surplus has continued to shrink, driven by new US sanctions on Russia and Iran, as well as robust demand growth. In its latest Oil Market Report, the IEA highlighted that the market surplus has narrowed to around 0.7 million barrels per day (mb/d) in 2025, assuming an extension of voluntary cuts by OPEC+ countries.

The new US sanctions on Russia and Iran, announced in January, initially triggered a rally in oil prices, with Brent crude futures briefly trading above $80 per barrel. However, market sentiment quickly shifted towards renewed concerns about the world economy and potential supply disruptions, leading to a fall in prices. Despite this, the IEA has revised its demand growth expectations for 2025 to 1.1 mb/d, up from 1.05 mb/d previously, citing an improved economic outlook.

The IEA also noted that improved OPEC+ compliance with agreed targets is slowly chipping away at the projected supply surplus in the oil market. OPEC+ crude supply fell by 280,000 barrels a day in January, while production from OPEC's 12 members plunged by 480,000 barrels a day. The OPEC+ alliance, which pumps more than half of the world's crude oil, has been withholding barrels for more than two years and is now set to gradually raise output from April.

The shift in trade flows towards non-OECD Asia, particularly China and India, is also influencing global oil market dynamics. Asia's growing structural shortfall in crude and oil products, combined with the expanding supply surplus in the Atlantic Basin, is driving this eastward shift. This trend is coinciding with a multitude of new challenges driving oil market activity, such as increased use of electric vehicles, emerging clean energy technologies, and more expansive efficiency policies. These factors are charting a much slower growth trajectory for oil demand, which is expected to plateau towards the end of the 2023-2030 forecast period.



In conclusion, the global oil market is experiencing a tightening supply-demand balance, driven by new US sanctions on Russia and Iran, robust demand growth, and improved OPEC+ compliance. The shift in trade flows towards non-OECD Asia is also influencing market dynamics, as Asia's growing demand for oil competes with other regions for access to global oil supplies. Despite these trends, the market remains well supplied, and the impact of the sanctions on the overall balance is expected to be limited. As the energy transition gathers pace, these dynamics will continue to evolve, shaping the future of the global oil market.