Weeks of declining oil prices due to concerns over a possible recession clash with the outlook for scarce supply and robust demand later in the year, the International Energy Agency (IEA) said on May 16.

“Prices were pressured lower by muted industrial activity and higher interest rates, which, combined have led to recessionary scenarios gaining traction,” the Paris-based agency said in its monthly oil report.

“The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 million barrels per day."

The IEA raised its forecast for global oil demand by 200,000 bbl/d to 102 million bbl/d (MMbbl/d), noting that China's recovery after the lifting of COVID-19 curbs had surpassed expectations with the country’s demand reaching a record 16 MMbbl/d in March.

The world's top oil importer is set to account for nearly 60% of global demand growth in 2023, offsetting, along with India and the Middle East, sluggish demand in developed countries.

The U.S. and Brazil will lead modest growth in oil supply of 1.2 MMbbl/d for the year as OPEC+ cuts agreed in April mean volumes from the producer group will fall 850,000 bbl/d through December, the IEA said.

Russian oil exports rose in April to 8.3 MMbb/d, the highest since Moscow's invasion of Ukraine, with revenue from the trade up by $1.7 billion on the month to $15 billion, according to the IEA.

U.S.-led price caps meant revenue was down nearly two-thirds year-on-year, however, and the IEA said Russia may not be following through on a 500,000 bbl/d output cut.

"Indeed, Russia may be boosting volumes to make up for lost revenue ... Russia seems to have few problems finding willing buyers for its crude and oil products."