Global oil supply is projected to decline by 4.3 million barrels per day, or Approximately 4%, this year, the International Energy Agency indicated in its monthly oil market report on Wednesday, as renewed hostilities in the Middle East are poised to exacerbate the global oil-market deficit. The US-Iran ceasefire collapsed last month, approximately one month following the signing of a memorandum of understanding aimed at concluding the conflict. Since then, tanker attacks in the Strait of Hormuz have resumed, and the conflict has expanded as Yemen’s Iran-aligned Houthi rebels initiated assaults in the Red Sea. The anticipated decline in supply contrasts with the 3.7 million bpd projection outlined in the IEA’s July report, resulting in an overall supply level that aligns with the IEA’s most conservative estimate for the year at 102.02 million bpd.
“Global oil supply has fallen well below demand due to the Strait of Hormuz shutdown, the US blockade of Iranian exports, attacks within the Bab el-Mandeb Strait and reduced Kazakh CPC Blend exports,” the IEA said, referring also to drone attacks in the Black Sea affecting exports. At the beginning of July, oil loadings from the Middle East had rebounded to 20 million barrels per day, aligning closely with the traffic levels observed prior to the conflict in Hormuz, according to the IEA. However, this figure subsequently declined to 12 million barrels per day later in the month. Middle East production stood at 8.3 million bpd below pre-war levels in July, according to the IEA, a significant decrease compared to the 14 million bpd of lost output observed at the peak of the crisis. “The nascent recovery underway from mid-May narrowed the supply deficit in June, but renewed hostilities undermined trade flows and tightened the 3Q26 balance.”
The IEA anticipates a shortfall in the oil market of 1.8 million bpd during the period from July to September, reflecting a downward adjustment of 1 million bpd from its previous forecast in July. That would represent the most significant quarterly deficit since the fourth quarter of 2021, as indicated by data from the IEA’s annual statistical supplement, which was also released on Wednesday. However, the Paris-based agency anticipates that global oil supply will exceed total demand by 4.61 million bpd next year, contingent upon de-escalation.in the forthcoming months. According to the IEA, that surplus could enable oil stocks to rebound to their February 2026 level by mid-next year, following 410 million barrels of cumulative stock draws since the onset of the Iran war. The IEA now anticipates a contraction in global oil demand this year by 1.6 million bpd, a revision from the approximately 1 million bpd decrease noted in its July report. Restricted supplies of refined fuels, coupled with elevated prices, have led to a decline in oil demand, according to the IEA, with naphtha and gasoil experiencing the most significant impacts, particularly in Asia and the Middle East, which are facing substantial year-on-year reductions.
“Product supply has significantly tightened due to reduced refinery activity in the Middle East and Asia, Bab el-Mandeb shipping constraints, as well as current Russian refinery outages.” In July, Russian oil refining persisted at approximately 3.9 million bpd, maintaining levels near a 20-year low, as Ukrainian drone strikes have impacted the majority of refineries located west of the Urals mountains. Consequently, Russian fuel exports declined to 1.4 million barrels per day in July, nearly half of the levels observed in July 2025, whereas crude exports reached a record high of 4.8 million barrels per day. In July, overall refinery crude oil processing experienced a decline of 5 million bpd year-on-year, as reported by the IEA. This downturn was attributed to the inability of available capacity within the global system to alleviate supply bottlenecks, consequently driving refining margins to unprecedented levels.
