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The global oil market is expected to return to a surplus in the fourth quarter of 2026, with a larger surplus anticipated in 2027 as production recovers faster than demand, according to the International Energy Agency's (IEA) November Oil Market Report.
The report highlighted that global oil supplies have surpassed demand for the first time since the outbreak of the war in Iran, signalling a gradual rebalancing of international oil markets. "Our November supply and demand balances suggest that the global oil market will return to a surplus in 4Q26, with a more substantial build in 2027," the IEA stated. According to the report, global oil demand is projected to decline by 2.7 million barrels per day (mb/d) in 2026 to 102.3 mb/d before rebounding by 2 mb/d in 2027. The agency noted that the pace of demand contraction is expected to moderate to 2.7 mb/d year-on-year in the fourth quarter of 2026, compared with declines of 5 mb/d in the second quarter and 3.8 mb/d in the third quarter. Global oil demand is expected to return to growth around March 2027 as supply chains normalise and disruptions to petroleum product exports from the Gulf gradually ease. The report stated that liquefied petroleum gas (LPG), ethane and naphtha would account for nearly 80 per cent of the projected demand increase in 2027, while transport fuels would register modest growth. On the supply side, global oil production increased by 2.3 mb/d in October to 105.4 mb/d, following a rise of 3 mb/d in September, supported by recovering oil exports from the Gulf. Gulf oil exports, excluding Oman, reached 18.4 mb/d in October, although they remained 26 per cent below pre-war levels. Crude oil shipments increased to 15 mb/d, equivalent to 82 per cent of pre-war levels. The recovery prompted the IEA to revise its global oil supply estimates for the fourth quarter of 2026 upward by 3.3 mb/d. For the full year, global oil supply is expected to decline by 4.8 mb/d in 2026 before recovering sharply by 6.6 mb/d to an average of 108.1 mb/d in 2027. Meanwhile, international crude oil prices have witnessed a sharp correction as recovering Gulf exports eased supply constraints. The report noted that North Sea Dated crude oil prices declined by approximately 32 per cent from a peak of USD 136 per barrel in early October to around USD 93 per barrel at the time of writing. However, crude prices remained approximately USD 22 per barrel above their pre-war levels. Despite easing crude prices, the IEA warned that tight supplies of refined petroleum products, particularly diesel, continue to pose challenges for global energy markets. European diesel prices declined by 11 per cent over the same period but remained close to USD 180 per barrel, approximately 77 per cent above pre-war levels. Global refinery activity weakened in October, with refinery runs declining by 1.3 mb/d month-on-month to 81.3 mb/d. However, refinery throughput is expected to recover to 84.7 mb/d by December 2026. The IEA also highlighted a recovery in global oil inventories, with observed stocks increasing by 52 million barrels in October, marking their first monthly rise since June. However, on-land inventories continued to decline and remained at their lowest levels since at least 2016. Looking ahead, the IEA cautioned that continued attacks on shipping could threaten the recovery in global oil supplies and undermine maritime security. The agency added that the accelerated release of IEA emergency diesel stocks over the coming months would help bridge supply gaps until global refinery operations and petroleum product output recover. (ANI)
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