The IEA's latest report indicates a drastic reduction in the 2026 demand outlook for crude oil, now projected at 1.1 million barrels per day, down 700,000 barrels from previous estimates. This decline follows a substantial drop in deliveries, which fell by 5 million barrels per day in the second quarter.
Concurrently, global oil supply decreased to 94.5 million barrels per day in May, a reduction of 600,000 barrels month-on-month, and is expected to drop further by 3.9 million barrels per day year-on-year in 2026.
However, the IEA anticipates a rebound in supply to 110.3 million barrels per day next year, which could lead to a significant oversupply, as demand is only expected to recover modestly to 105.3 million barrels per day in 2027. The report highlights the complex dynamics of the oil market, where elevated fuel prices and refined product shortages are contributing to reduced demand.
As the U.S. and Iran approach a potential agreement to end hostilities, oil prices have already fallen to a three-month low, with Brent crude at $78.44 and West Texas Intermediate at $75.18. The IEA notes that while a full recovery of oil exports and production may take time, the reopening of the Strait of Hormuz could facilitate a gradual increase in supply.
However, the agency cautions that global oil inventories are depleting rapidly, having fallen by 143 million barrels in May alone, which could lead to historic lows before the market shifts to a surplus later in the year.
Analyst Tamas Varga from PVM Oil Associates emphasizes that the reopening of the Strait of Hormuz will be crucial for the oil balance, although the extent of its impact remains uncertain