Oil & Energy
Middle East Supply Strains Deepen as Falling Inventories Put Oil Prices Under Pressure, IEA Says
Oil markets face renewed supply pressure as Middle East disruptions persist, while shrinking inventories put further strain on prices and demand, Toril Bosoni, head of the International Energy Agency's Oil Industry and Markets Division, said Friday.Strait of Hormuz flows averaged 7.6 million barrels per day in August, 13.1 million b/d below pre-war levels, while cumulative losses approached 2.8 billion barrels.The agency estimates supply deficits of 2.2 million b/d in Q2 and 1.7 million b/d in Q3 of 2026, below the headline losses as other factors offset shortages.Oil markets entered the crisis with over 1 million b/d of surplus supply, while global output exceeded demand by 1.4 million b/d on average in 2025.The surplus topped 2 million b/d in the second half of 2025 as OPEC+ producers unwound cuts, driving significant inventory gains, particularly in China, according to the IEA.Saudi Arabia and the UAE redirected crude through Yanbu and Fujairah as Strait traffic weakened, lifting combined flows from 4.1 million b/d in February to 7.8 million b/d in June.Houthi attacks later reduced those bypass flows to 5.5 million b/d in August, while the routes offset more than 500 million barrels of Strait losses before a pipeline attack curtailed flows further.US military support has helped increase tanker transits through the Strait of Hormuz, although flows remain below pre-war levels.Producers outside the Gulf supplied an additional 420 million barrels, or 2.3 million b/d, since the war began, with gains led by the US, Brazil and Kazakhstan.US output rose 520,000 b/d between February and August, while Brazil added 470,000 b/d, Kazakhstan 440,000 b/d, Venezuela 300,000 b/d and Nigeria 200,000 b/d.Global biofuels production also increased seasonally by 890,000 b/d, while global oil demand averaged 5.8 million b/d below February levels over the past six months.China recorded the largest demand decline, with apparent consumption down 1.7 million b/d from February and 1.1 million b/d from the same six-month period a year earlier.Chinese seaborne crude imports dropped from 11.5 million b/d in February to 6 million b/d in June, easing supply pressure on other Asian crude buyers, according to the IEA.Oil demand has also fallen across other markets as restricted petrochemical and aviation activity, fuel rationing and higher prices curb consumption, the IEA said.Global oil demand fell 5.3 million b/d over the year in Q2 2026, while the IEA expects full-year demand to contract by 2.5 million b/d, led by the Middle East and Asia, which account for 80% of the decline.Gasoil led the decline, falling 1.2 million b/d over the year, while naphtha, liquefied petroleum gas and ethane deliveries fell a combined 1.8 million b/d in Q2 2026, the IEA said.Oil inventories have declined at a record 2.8 million b/d pace over six months, leaving observed stocks 507 million barrels lower as IEA members released more than 300 million barrels.Non-OECD crude inventories fell 105 million barrels, with China's above-ground tanks accounting for 65% of the decline and lower oil-on-water volumes driving most of the remainder, the IEA said.The IEA said depleted inventory buffers increase the urgency of reopening the Strait of Hormuz and bypass routes, warning that further supply disruptions could significantly affect global oil markets.