The global oil market is expected to return to a surplus in the final quarter of this year for the first time since the outbreak of the Iran war, as a recovery in Middle Eastern exports outpaces demand, the International Energy Agency said Friday.
Global oil supply rose by 2.3 million barrels a day in October to 105.4 million barrels a day, following a 3 million-barrel-a-day increase in September. The recovery has helped ease market tightness despite continuing attacks on energy infrastructure and commercial tankers.
The IEA, a Paris-based energy watchdog, said Gulf oil exports excluding Oman reached 18.4 million barrels a day in October, about 26% below prewar levels. Crude shipments recovered to 15 million barrels a day, equivalent to 82% of their prewar volumes.
The increase prompted the agency to raise its fourth-quarter global supply estimate by 3.3 million barrels a day, while projecting a larger market surplus in 2027. However, it warned that further attacks on shipping could undermine the recovery.
The improvement has also begun to show in global inventories. Observed oil stocks rose by 52 million barrels in October, their first monthly increase since June, as oil held at sea surged by 86 million barrels amid higher Gulf exports.
On-land inventories continued to decline, however, remaining at their lowest level since at least 2016. Stocks across the Organization for Economic Cooperation and Development fell by 47 million barrels in October, including a 41 million-barrel decline in industry inventories.
Despite October's increase in inventories, observed global oil stocks have fallen by a cumulative 462 million barrels since the war began in February.
The IEA expects global oil supply to decline by 4.8 million barrels a day in 2026 before rebounding by 6.6 million barrels a day to an average of 108.1 million barrels a day next year. The projected recovery includes an increase of 5.3 million barrels a day in Gulf production.
The agency also lowered its 2027 supply outlook because of constraints on Iranian oil shipments, even as higher Gulf exports lifted its expectations for the remainder of this year.
Global oil demand, meanwhile, is expected to fall by 2.7 million barrels a day in 2026 to 102.3 million barrels a day. The annual contraction is forecast to ease to 2.7 million barrels a day in the fourth quarter, from an average decline of 4.4 million barrels a day in the second and third quarters.
Demand is projected to recover by 2 million barrels a day in 2027, with growth resuming around March. Petrochemical feedstocks, particularly liquefied petroleum gas, ethane and naphtha, are expected to account for around 80% of the increase as supply chains normalize.
Demand for transport fuels is expected to see little growth as elevated prices accelerate electrification and improvements in vehicle fuel efficiency.
Despite signs of a broader market recovery, diesel supplies remain constrained. The IEA said high prices and stronger refinery output have modestly improved the outlook, but inventories remain depleted and further disruptions to Russian refineries could delay a sustained recovery.
The agency expects the global diesel market to record a modest surplus of 20,000 barrels a day in the fourth quarter, followed by a surplus of 460,000 barrels a day in the first quarter of 2027. However, it said market tensions might not ease substantially until the second half of next year.
Ukrainian attacks on Russian refineries resumed in early November, while U.S. industry diesel inventories fell to 88 million barrels, their lowest level since 2013. Combined U.S. gasoil and diesel stocks dropped below 100 million barrels for the first time since 2003.
IEA member countries plan to release another 71 million barrels of emergency oil stocks through February 2027, equivalent to roughly 600,000 barrels a day over the period. About 15 million barrels of the planned releases will be diesel, largely from government reserves in France and Germany.
The additional releases would bring the total volume of emergency stocks released since March to around 420 million barrels, exceeding the 400 million barrels initially committed by IEA countries.
Global refinery runs, meanwhile, fell by 1.3 million barrels a day in October to a seasonal low of 81.3 million barrels a day. The agency expects throughput to recover to 84.7 million barrels a day in December, before averaging 84.3 million barrels a day in 2027.
The recovery in Gulf exports has also helped push crude prices lower. North Sea Dated crude fell more than 30% from a high of $136 a barrel in early October to around $93 a barrel when the report was prepared. European diesel prices declined 11% over the same period but remained 77% above prewar levels.
Oil prices were higher Friday, with front-month Brent crude futures rising 0.7% to $96.44 a barrel in European trading, while front-month West Texas Intermediate crude futures gained 0.5% to $89.18 a barrel.
Freight rates for crude shipments from the Middle East to Asia remained near record highs, continuing to weigh on refining profitability.
The IEA said the outlook for a sustained recovery remained dependent on maritime security, with attacks on tankers and energy infrastructure threatening to disrupt oil flows even as production and exports improve.
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