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The global oil market is on track to shift from war-driven supply shortages to a sizeable surplus by 2027, the International Energy Agency said Wednesday, as recovering Gulf production and trade flows are expected to outpace demand.
The IEA forecasts global oil supply will reach 110.3 million barrels per day in 2027, compared with demand of 105.3 million barrels per day, swinging the market from an estimated deficit of about 900,000 barrels per day in 2026 to a surplus of roughly 5 million barrels per day that may put downward pressure on oil prices.
The projection stands in sharp contrast to current market conditions, where nearly four months of conflict in the Gulf have disrupted exports, constrained supply flows and forced governments to draw down emergency oil reserves.
Global oil supply fell by about 600,000 barrels per day in May from the previous month to 94.5 million barrels per day, according to the agency.
That was about 13.6 million barrels per day below levels seen before the outbreak of the U.S.-Israel-Iran conflict, according to the IEA's latest Oil Market Report.
The decline came as a U.S. naval blockade restricted Iranian oil exports and Iran's move to restrict shipping traffic through the strait disrupted flows through the region, while Gulf producers struggled to offset the losses.
To help ease pressure from soaring oil prices, the IEA coordinated the release of 400 million barrels from emergency reserves, with 252 million barrels reaching the market by June 12. The intervention contributed to a sharp decline in OECD government inventories, which fell by 163 million barrels during the conflict and reached their lowest level since 1990 in May.
"Despite the significant reductions in demand for crude oil and refined products, the buffers in the system continue to erode at a record pace," the IEA said.
The agency expects emergency stock releases to slow in the coming months following the ceasefire agreement but warned that geopolitical uncertainties and questions surrounding the durability of the deal continue to pose risks.
The report pointed to a temporary agreement between the United States and Iran as a potential turning point for the market, with the deal expected to reopen the Strait of Hormuz and ease restrictions on Iranian oil exports after months of disruption.
Scheduled to be signed on June 19 in Switzerland, the agreement could help restore Gulf supply flows that have been constrained since the conflict began.
The IEA cautioned, however, that key obstacles remain, including mine clearance operations and unresolved transit arrangements in the strategic waterway, meaning a full recovery is unlikely to be immediate.
Against that backdrop, the agency lowered its outlook for oil demand, citing elevated fuel prices and supply disruptions that have curbed consumption across major markets.
The IEA cut its 2026 demand forecast by about 700,000 barrels per day from its previous estimate and now expects global oil demand to fall by 1.1 million barrels per day year-on-year to 103.3 million barrels per day.
Oil deliveries slumped in April and May, with second-quarter shipments projected to decline 4.8% from a year earlier. If realized, it would mark the first quarterly contraction in global oil demand since 2020.
"We see growth rebounding to 2 mb/d in 2027, as a normalization of trade flows, lower oil prices and an improving economic outlook contribute to the recovery," the agency said.
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