Oil Rallies as IEA Trims Supply Surplus Forecast

The recent rally in oil markets marks a decisive break from a period of weakness, with prices climbing from their lowest levels in almost two months. This upward momentum was supported by a bullish sentiment spreading across broader financial markets, providing a tailwind for commodity assets. The price action reflects a market reassessing its near-term fundamentals, a process given concrete form by the latest monthly report from the International Energy Agency.

In a notable pivot, the IEA revised down its projections for the global oil supply surplus for both 2024 and 2025. This is the first time in several months the agency has trimmed these estimates, indicating a meaningful change in its assessment of the supply-demand balance. The revision is attributed to two concurrent trends: a strengthening in global oil demand and a deceleration in the growth of output from producers outside the OPEC+ alliance. This combination points to a gradually tightening market, reducing the previously anticipated glut of crude.

The IEA’s revised outlook carries additional significance as it narrows a longstanding gap with the perspective of the Organization of the Petroleum Exporting Countries (OPEC). For months, a divergence has existed between the two organizations’ demand forecasts, with OPEC typically presenting a more optimistic view of consumption growth. This discrepancy has been a source of debate and uncertainty for traders and analysts trying to gauge the true state of the market.

According to Sara Vakhshouri, President and Founder of SVB Energy International, this gap is now closing. In an interview with Bloomberg’s Jennifer Zabasajja on ‘Horizons Middle East and Africa,’ Vakhshouri highlighted that the IEA’s latest demand forecast is moving closer to OPEC’s projections. This convergence suggests the two influential bodies are reaching a more consensus view that the market is on a path toward greater equilibrium. The alignment of these key institutional forecasts can bolster market confidence and provide a firmer foundation for price discovery.

The confluence of a price rebound, a trimmed surplus forecast, and converging institutional views paints a picture of a market at an inflection point. The IEA’s acknowledgment of stronger demand undermines narratives of an imminent, prolonged oversupply, while its note on slowing non-OPEC+ output growth hints at potential capacity constraints among other major producers. This environment reduces the perceived buffer in the market, making prices more sensitive to geopolitical disruptions or unexpected changes in consumption patterns.

For market participants, the current dynamics underscore the importance of monitoring high-frequency data on inventory levels, refinery activity, and compliance within the OPEC+ alliance. The revised IEA report, coupled with OPEC’s own assessments, will be critical in shaping expectations for the remainder of the year. While volatility remains a constant in energy markets, the recent developments suggest the balance of risks may be tilting away from surplus concerns and toward a focus on the durability of demand and the discipline of supply.