The expected oil market surplus in 2027 could be upended by the recent re-escalation of the US-Iran conflict after the interim ceasefire deal was breached, leading to a renewed increase in oil prices, according to the International Energy Agency.
In its July oil market report published Friday, the IEA said global oil demand is on the road to recovery, expecting it to increase by more than 8 million barrels per day by October from a low of 97.9 million barrels per day in May. Nonetheless, the agency forecasts demand will decline by 1 million barrels of oil per day in 2026 before rebounding by 2 million barrels per day in the next year.
Meanwhile, global supply is projected to drop by an average of 3.7 million barrels of oil per day to 102.6 million barrels per day in 2026, assuming that renewed hostilities between the US and Iran quickly de-escalate. Looking ahead, supply is anticipated to increase by 7.5 million barrels per day next year if transit volumes rise.
"While the global oil market balance looks set to swing back to surplus towards the end of the year, the forecast hinges on the assumption that tanker flows through the [Strait of Hormuz] will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments. Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalisation in oil markets," the IEA noted.