Global oil demand is recovering after months of disruptions in the Middle East, but a flare-up in fighting between the U.S. and Iran has cast uncertainty over the outlook just as markets were bracing for a new wave of supply next year, the International Energy Agency said.
While consumption is projected to decline by 1 million barrels a day this year, the pace of contraction is easing sharply. Demand fell by 4.8 million barrels a day in the second quarter and is forecast to decline by 1.7 million barrels a day in the third quarter before returning to growth in the final three months of the year, with consumption rising by 1.2 million barrels a day.
The rebound would mark a turning point for a market that spent much of the year gripped by fears that the war could remove millions of barrels a day from global supplies. The latest escalation in hostilities, however, could now upend expectations that the market will move into surplus next year, the IEA said.
The Paris-based energy watchdog, a group of Western nations and their allies, currently forecasts demand to rise by 1.9 million barrels a day in 2027, while global supply is expected to surge by around 7.5 million barrels a day.
"The forecast hinges on the assumption that tanker flows through the Strait will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments," the agency said in its closely watched monthly report on Friday.
The U.S. and Iran exchanged a series of attacks this week, marking the sharpest escalation since the two sides agreed to a 60-day peace deal in mid-June. President Trump said he considered the ceasefire over and revoked a license allowing Iran to sell oil on the open market.
Now, traffic through the Strait of Hormuz--a critical route that normally handles around one-fifth of the world's oil and natural-gas flows--is close to a halt again, the IEA said.
Oil prices surged before easing back on Friday as traders took a wait-and-see approach. Brent crude was trading around $75 a barrel in mid-morning European trade, while West Texas Intermediate stood just above $71 a barrel.
In late June, oil flows through the Hormuz waterway had rebounded sharply, recovering to more than 70% of prewar levels. Still, tanker operators continue to face elevated security, insurance and operational risks, while mines have yet to be fully cleared from shipping lanes and discussions of the long-term governance of the Strait remain stalled.
"Large volumes of Gulf crude remain on water awaiting buyers, while the pace of supply restoration will depend on the restart of regional refineries, continued security guarantees for tanker movements and a possible resumption of Chinese buying, particularly for Iranian barrels," the IEA said.
Global oil supply rose by 4.1 million barrels a day in June to 98.8 million barrels a day after tanker traffic resumed, but world production remained about 9.4 million barrels a day below prewar levels, highlighting how much supply has yet to return.
The IEA expects global supply to fall by 3.7 million barrels a day this year before rebounding in 2027. The Organization of the Petroleum Exporting Countries and its allies are set to increase output by 5.3 million barrels a day next year, while production from outside the group is forecast to grow by 2.2 million barrels a day.
Meanwhile, global oil inventories rose in June for the first time in four months, as a surge in crude held on water more than offset continued declines in onshore storage. Oil at sea increased by 117 million barrels as shipments resumed toward refineries, while land-based inventories fell by around 96 million barrels, including 44 million barrels from government reserves in Organisation for Economic Co-operation and Development countries, according to the IEA.
Write to Giulia Petroni at giulia.petroni@wsj.com
(END) Dow Jones Newswires
July 10, 2026 04:50 ET (08:50 GMT)
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