Supply is set to surge by 8 million barrels per day next year as Middle East output rebounds, swamping a modest demand recovery
Credit: Tom Fisk / Pexels
The International Energy Agency is forecasting a significant oil supply surplus in 2027 as Middle East production recovers from the disruption caused by the closure of the Strait of Hormuz, with global supply expected to outpace demand by more than 5 million barrels per day.
According to the IEA's June oil market report, consumption is expected to reach 105.3 million barrels per day in 2027 — a gain of 2 million barrels per day — while output climbs by roughly 8 million barrels per day to hit 110 million barrels per day. The agency said the surplus "may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis."
The forecast comes after an interim agreement between the U.S. and Iran, scheduled to be signed on June 19 in Switzerland, paved the way for a reopening of the strait and a lifting of the U.S. naval blockade on Iranian oil. The war is estimated to have blocked more than 14 million barrels per day of Middle East oil output, according to Reuters.
Ship-to-ship transfers in the Gulf of Oman had already begun lifting total Middle East throughput by early June, pushing it from a May trough of 9.6 million barrels per day to roughly 12 million barrels per day, the IEA noted. The IEA nonetheless flagged that operational and political hurdles — among them the time needed to clear mines and disputes over transit rights — could slow the pace at which Middle East output returns.
Before the surplus materializes, the market faces further strain. Global supply is set to fall by 3.9 million barrels per day in 2026 to 102.4 million barrels per day, and the IEA warned that inventories could plunge to historic lows before the market balance shifts to surplus toward the end of this year. Since fighting broke out on February 28, observed inventories have been draining at 3.8 million barrels per day on average, with May registering a single-month draw of 143 million barrels. OECD government inventories fell to their lowest level since December 1990.
For 2026 as a whole, the IEA expects consumption to contract by 1.1 million barrels per day, a toll shaped in large part by a 5-million-barrel-per-day collapse in deliveries across April, May, and June as elevated fuel costs and product shortages squeezed end users. The IEA said demand destruction has spread across products and regions. North Sea Dated crude prices collapsed by more than $40 per barrel during May through mid-June to around $82 per barrel, and Brent futures were trading at around $79 per barrel.
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