To The Moon

The International Energy Agency (IEA) has issued a fresh warning that the dual geopolitical shocks from the Middle East and the Russia-Ukraine conflict could not only lead to fuel shortages this summer but also overturn previous predictions of a significant oil market surplus next year.

In a report released Friday, the IEA stated that the recent escalation of hostilities between the US and Iran could invalidate its assessment that the oil market will face a substantial oversupply in 2025.

While global oil supply rebounded notably in June following the reopening of the Strait of Hormuz, it remains below pre-conflict levels. The agency reported that global oil supply increased by 4.1 million barrels per day in June, yet it is still 9.4 million barrels per day lower than before the conflict.

The IEA also forecasts that after decreasing by 3.7 million barrels per day this year, global supply will increase by 7.5 million barrels per day next year. However, this outlook is contingent on continued improvements in transit conditions through the Strait of Hormuz.

The agency noted that the escalation of hostilities on July 7-8 "casts a shadow over the outlook and could upend predictions that the market will shift into surplus next year." It further emphasized that a lasting peace agreement is a "necessary condition" for the oil market to return to normalcy.

According to its projections for 2027, if producers can restart oil fields and refiners can resume normal transportation of refined products, the global oil market would shift from a deficit of 860,000 barrels per day this year to a surplus of 4.62 million barrels per day next year.

The agency expects global oil demand to fall by 1 million barrels per day this year, before rebounding and increasing by 2 million barrels per day in 2027. In the near term, with the arrival of the peak summer fuel demand season, the IEA anticipates consumption will rise by approximately 8 million barrels per day from the low point seen in May during the peak of the crisis.

Supplies of gasoline and diesel are also under pressure. The IEA warned that gasoline and diesel supplies are facing tightness due to the conflict's impact on refineries in the Middle East and Russia.

Since the US-Israel strikes on Iran in February, shipping through the Strait of Hormuz has been restricted, making it difficult for Gulf refiners to transport products and forcing them to cut operations. Simultaneously, government measures to shield consumers from retail price shocks at the pump have kept global gasoline consumption elevated. The IEA pointed out in its report: "The result is that industry stocks are being drawn down faster than normal."

The report indicates that if this trend continues and refineries remain hampered by the conflict, gasoline supplies will stay tight this summer.

The IEA stated that the global oil supply outlook would deteriorate significantly if transit through the Strait of Hormuz nears a standstill again. Concurrently, Ukraine has intensified attacks on Russian refineries, which primarily export diesel and a smaller amount of gasoline. In response to a domestic fuel crisis following infrastructure attacks, Moscow banned diesel exports this past Wednesday.