The International Energy Agency (IEA) reported on Wednesday that the oil supply shock triggered by the conflict in Iran has already somewhat weakened global crude oil demand, and if a lasting resolution to the conflict is achieved, supply could rebound significantly, potentially leading to a substantial oil surplus next year.
Zhitong Finance APP learned that the International Energy Agency (IEA) stated in a report released on Wednesday that the oil supply shock triggered by the conflict involving Iran has already somewhat weakened global crude oil demand. If a durable resolution to the conflict is achieved, supply could rebound significantly, potentially leading to a pronounced oil surplus next year.
In its latest monthly oil market report, the IEA sharply revised down its forecast for global daily oil demand growth in 2026 to 1.1 million barrels per day (bpd), a reduction of 700,000 bpd from last month’s projection. The report cited a sharp 5 million bpd drop in global oil deliveries in the second quarter of this year as the primary reason for the downward revision.
Meanwhile, global oil production fell to 94.5 million bpd in May, down 600,000 bpd month-over-month and significantly below pre-conflict levels by 1.36 million bpd.
The IEA forecasts that global average daily supply in 2026 will decline by 3.9 million bpd year-on-year to approximately 102.4 million bpd, but will strongly rebound to 110.3 million bpd in 2027.
The agency noted that the decline in demand reflects dual pressures from high fuel prices and refined product shortages, emphasizing that the impact of this geopolitical conflict has long extended beyond a simple supply-side shock.
“Significant surplus” on the horizon
However, the IEA also indicated that by 2027, global supply is expected to increase substantially by approximately 8 million bpd, reaching around 110 million bpd—far exceeding the modest demand recovery projected for that year, which anticipates only a 2 million bpd increase to 105.3 million bpd.
The IEA stated in its report: “Our first assessment of the 2027 supply-demand balance indicates a clear surplus in the market next year.”
The report was released as investors closely monitor progress on a U.S.-Iran agreement aimed at ending the Middle East conflict and the potential reopening of the Strait of Hormuz and its implications for energy markets.
International oil prices have fallen to a three-month low following reports that three Iranian tankers carrying nearly 5 million barrels of crude broke through the U.S. Navy blockade in the Strait of Hormuz, coupled with news that the U.S. and Iran are set to sign an agreement in Geneva on Friday.
On Wednesday, the international benchmark Brent crude oil price closed at $78.44 per barrel, down slightly by 0.7%; the U.S. WTI crude futures contract for July delivery fell nearly 1.1%, closing at $75.18.
The IEA stated in its report: 'If the agreement holds, oil exports and production in the Gulf region should gradually resume—particularly as the U.S. sanctions are lifted, allowing for a full restart of Iranian crude exports.'
Full normalization of supply could take several months.
Report authors noted that earlier this month, traffic through the Strait of Hormuz had already shown a marked recovery, aided by ship-to-ship transfers in the Gulf of Oman, with total flows rebounding from a May low of 9.6 million barrels per day to approximately 12 million barrels per day.
However, the IEA cautioned that a full recovery may not happen overnight. The report added: 'Mines in the main shipping lanes need to be cleared, and rebuilding supply chains will also take time.'
The IEA also expressed cautious views regarding global oil inventory pressures.
Data show that global observed oil inventories declined by 143 million barrels in May, widening from the April drop of 74 million barrels. Since the outbreak of conflict on February 28, global inventories have cumulatively decreased by approximately 3.8 million barrels per day.
The IEA noted: 'Although demand for both crude oil and refined products has fallen sharply, buffer stocks within the system continue to be drawn down at a record pace. Further inventory drawdowns over the coming months could push global oil stocks to historic lows before the global oil market balance turns into a surplus by year-end.'
Tamas Varga, an analyst at PVM Oil Associates, said that despite the significant inventory drawdown, current oil prices have already 'approached' levels seen before the conflict erupted at the end of February.
Varga analyzed: 'The prevailing market assumption is that the Strait of Hormuz will reopen and vessel traffic will resume in both directions. Regardless of how gradual the recovery process may be, the incremental restoration of oil flows will have a material impact on market balance. The key question is the magnitude of that impact.'
Editor/Deng