Global oil supply will fall by 4.3 million barrels per day, or around 4%, this year, the International Energy Agency said on Wednesday, as renewed hostilities in the Middle East disrupt supplies and plunge the world deeper into an oil-market deficit.
The U.S.-Iran ceasefire broke down last month around a month after the parties signed a memorandum of understanding to end the war. Since then, tanker attacks in the Strait of Hormuz have resumed and the conflict spread as Yemen’s Iran-aligned Houthi rebels launched attacks in the Red Sea.
“Global oil supply has fallen well below demand due to the Strait of Hormuz shutdown, the U.S. blockade of Iranian exports, attacks within the Bab el-Mandeb Strait and reduced Kazakh CPC Blend exports,” the IEA, which advises industrialised countries, said in a monthly report, referring also to drone attacks in the Black Sea affecting exports.
This year’s expected supply drop compares with the 3.7 million bpd forecast in the IEA’s July report, and will take total supply to the Paris-based agency’s lowest forecast yet for this year at 102.02 million bpd.
That would put global supply around 1.27 million bpd below demand this year, widening from an 860,000 bpd deficit implied from the IEA’s July forecasts.
MIDDLE EAST RECOVERY UNDER THREAT
Middle East oil loadings had recovered to 20 million bpd at the start of July – broadly in line with pre-war Hormuz traffic – the IEA said, but dropped back to 12 million bpd later in the month.
Middle East production was 8.3 million bpd below pre-war levels in July, the IEA added, compared with 14 million bpd of lost output at the peak of the crisis.
“The nascent recovery underway from mid-May narrowed the supply deficit in June, but renewed hostilities undermined trade flows,” it said.
The IEA expects an oil market deficit of 1.8 million bpd over July-September, marking a 1 million bpd downward revision from its July forecast.
That would be the deepest quarterly deficit since the fourth quarter of 2021, data from the IEA’s annual statistical supplement, also published on Wednesday, imply.
For 2027, the agency sees global supply outstripping total demand by 4.61 million bpd, assuming de-escalation in the coming months.
That surplus could allow inventories to recover to their February 2026 level by the middle of next year, the IEA said, after 410 million barrels of cumulative stock draws since the Iran war started.
BOTH IEA AND OPEC LOWER THEIR 2026 OIL DEMAND VIEWS
The IEA now expects global demand to contract this year by 1.6 million bpd, steeper than the roughly 1 million bpd drop seen last month.
In contrast, producer group the Organization of the Petroleum Exporting Countries, which also updated its forecasts on Wednesday, still expects demand to grow this year. OPEC sees demand rising by 580,000 bpd, although this is 200,000 bpd less than it thought before.
Restricted refined fuel supplies, and higher prices, have curtailed demand, the IEA said, with naphtha and gasoil the worst-hit products, and Asia and the Middle East bearing the brunt of the year-on-year declines.
Russian oil refining remained close to a 20-year low at 3.9 million bpd in July as Ukrainian drone attacks have hit most refineries west of the Urals mountains.
Russian oil output in July edged lower by 100,000 bpd to 8.76 million bpd, below its target set by OPEC+, which includes OPEC plus Russia and other allies, IEA data showed.
Global refinery crude processing was down by 5 million bpd on the year in July, the IEA said, as available capacity was unable to offset supply bottlenecks, propelling refining margins to record highs.
REUTERS
