Oil price spikes are likely over the peak summer demand period as rapidly depleting inventories pile more pressure on the market, the International Energy Agency warned in its latest monthly update released on Wednesday.
The oil market report for May noted that global oil supply declined by a further 1.8 million barrels per day in April, taking total losses to 12.8 mb/d since the U.S.-Israeli war with Iran began on February 28.
“More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace,” the IEA wrote.
International benchmark Brent futures traded near $107 per barrel on Wednesday, while U.S. crude oil futures were just above $101 per barrel.
The report’s authors also flagged further demand destruction as a result of the war, forecasting a contraction of 420 thousand barrels per day by the end of 2026, year-on-year, to 104 million barrels per day.
“The petrochemical and aviation sectors are currently most affected, but higher prices, a weaker economic environment and demand-saving measures will increasingly impact fuel use,” the IEA said.
Morgan Stanley forecasts the market will lose another billion barrels over the course of 2026 due to the time required to restart oilfields, repair refineries and reposition the tanker fleet.
“That this is the largest oil supply disruption in the history of the oil market is neither an exaggeration nor controversial,” Martijn Rats, commodities strategist at Morgan Stanley, told clients in a Monday note.
Saudi Aramco CEO Amin Nasser and International Energy Agency chief Fatih Birol have described the disruption in the same terms.
ICE Brent crude and WTI crude prices year-to-date.
In response, commercial and government stockpiles are being released to offset some of the losses.
OPEC+ agreed an increase in oil output of 188,000 barrels per day, the cartel said on May 3, as it pushes on with production in the first meeting since the loss of its key member, the United Arab Emirates.
The group of seven major oil producers announced it would increase June production by slightly less than May’s output hike of 206,000 bpd. Sunday’s figure excludes the United Arab Emirates share of output, which officially departed OPEC on May 1.
The seven countries included Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman.
— CNBC’s Spencer Kimball also contributed to this report.