Global Oil Supply Returns to Surplus as Gulf Exports Recover, Says IEA

Global oil supply has returned to surplus for the first time since the outbreak of the Iran war, as crude shipments from the Middle East recover faster than worldwide demand. The International Energy Agency (IEA), in its November 2026 Oil Market Report, said global oil supplies exceeded demand in October, with inventories beginning to rebuild after months of disruption to international energy markets.

The Paris-based agency reported that global oil supply increased by 2.3 million barrels per day (bpd) to 105.4 million bpd in October. Its latest forecasts indicate that supply will exceed demand by approximately 1.7 million bpd during the fourth quarter of 2026. However, the agency warned that continued attacks on shipping, weak demand and tight supplies of refined products, particularly diesel, remain significant risks.

Global Oil Supply Exceeds Demand for the First Time Since Iran War

The return to a supply surplus represents a major shift in the global oil market following months of disruption caused by the conflict involving Iran.

The war affected shipments through the Strait of Hormuz, one of the world’s most important energy transportation routes. Approximately one-fifth of global oil and gas supplies normally pass through the waterway, making disruptions particularly significant for international energy markets.

Despite continued security concerns and attacks on commercial tankers, Gulf oil exports recovered during October. The IEA said global supply increased by 5.3 million bpd between August and October.

The recovery was largely driven by higher exports from Gulf producers, which helped offset production and shipment losses caused by the conflict.

According to the agency, global oil inventories increased by 52 million barrels in October, equivalent to approximately 1.7 million bpd. This marked the first monthly increase since June 2026.

The return of inventory growth indicates that additional supplies are reaching the market faster than consumers are using them.

IEA Raises Fourth-Quarter Oil Supply Forecast

The IEA significantly revised its expectations for the final quarter of 2026 after Gulf exports recovered more quickly than anticipated.

The agency now expects global oil supply to average approximately 105 million bpd during October–December, around 1.7 million bpd above forecast demand.

Its previous outlook had anticipated a supply deficit during the quarter.

Global oil market indicator	IEA estimate
Global oil supply in October 2026	105.4 million bpd
Monthly supply increase in October	2.3 million bpd
Supply increase since August	5.3 million bpd
Expected Q4 2026 supply surplus	1.7 million bpd
October inventory increase	52 million barrels
Projected 2026 demand	102.3 million bpd
Projected 2027 supply	108.1 million bpd

The improvement in supply conditions has helped reduce pressure on global crude prices. North Sea Dated crude, an international benchmark, fell approximately 32% from its October 8 peak of $136 per barrel to around $93 per barrel at the time of the IEA report.

However, the agency cautioned that a return to surplus does not mean all parts of the energy market have returned to normal.

Gulf Oil Exports Recover Despite Shipping Disruptions

The recovery in Middle Eastern exports has been central to the changing supply outlook.

Gulf oil exports, excluding Oman, reached 18.4 million bpd in October, according to the IEA. Although this represented a substantial recovery, the figure remained 26% below pre-war levels.

Crude shipments accounted for much of the improvement, reaching approximately 15 million bpd, equivalent to 82% of their pre-war level.

OPEC+ production also increased significantly. According to Reuters’ reporting of the IEA assessment, the group produced approximately 41.23 million bpd in October, around 97% of its pre-war volumes.

Producers have used alternative shipping arrangements and other workarounds to restore exports despite continuing security risks around the Strait of Hormuz.

The recovery has not eliminated the possibility of further disruptions. Attacks on tankers and energy infrastructure could interrupt shipments again, potentially reversing some of the recent improvement.

Global Oil Demand Falls 2.7 Million Barrels Per Day in 2026

While supply has recovered, global oil demand remains under pressure.

The IEA expects worldwide oil consumption to decline by 2.7 million bpd in 2026 to an average of 102.3 million bpd. High energy prices, supply-chain disruptions and weaker consumption of transportation fuels are contributing to the decline.

The agency expects demand to rebound by approximately 2 million bpd in 2027 as supply chains normalise and economic activity improves.

However, the recovery is expected to be uneven across different oil products.

Petrochemical feedstocks, including LPG, ethane and naphtha, are expected to account for around 80% of the projected demand increase in 2027. These products are likely to benefit from the normalisation of industrial supply chains.

Demand for conventional transportation fuels is expected to grow much more slowly. Higher fuel prices, vehicle electrification and improvements in fuel efficiency are changing consumption patterns across major markets.

The outlook suggests that even as economic activity improves, oil demand may not return quickly to its previous growth trajectory.

Oil Supply Could Increase by 6.6 Million Bpd in 2027

The IEA expects global oil production to recover further in 2027 as Gulf producers restore output and supply from other producing countries increases.

Global supply is projected to rise by 6.6 million bpd next year, reaching an average of 108.1 million bpd.

The United States, Canada, Brazil, Argentina and Guyana are expected to contribute to the increase. Together, these five countries are projected to raise production by approximately 1.6 million bpd in 2026.

The recovery in Gulf production is expected to be the largest contributor to the 2027 supply increase.

However, the IEA has also revised its 2027 supply outlook downward compared with its previous report, partly because of lower expectations for Iranian shipments.

Based on its latest supply and demand estimates, the agency expects a more substantial surplus of approximately 3.8 million bpd in 2027.

Such a surplus could create additional downward pressure on crude prices if production growth exceeds demand recovery. However, the forecast remains exposed to geopolitical developments, production decisions and unexpected changes in consumption.

Diesel Supply Remains a Major Concern

Despite the improvement in crude availability, the IEA warned that refined-product markets remain under considerable pressure.

Diesel is a particular concern because disruptions to Middle Eastern exports and persistent attacks on Russian energy infrastructure have reduced supplies available to international markets.

The agency said diesel prices remained close to $180 per barrel at the time of its report, approximately 77% above pre-war levels.

Refineries are adjusting operations to take advantage of changing crude availability and product margins. US refineries have benefited from cheaper crude, while improved crude availability in Asia could support higher processing rates.

Additional Chinese product export quotas could also help increase supplies in international markets.

The IEA expects global refinery throughput to recover in the coming months. However, the recovery will take time, leaving diesel markets vulnerable to supply shortages and high transportation costs.

IEA Emergency Oil Reserves to Add 71 Million Barrels

The agency also provided an update on the remaining volumes from the emergency oil stockpile release pledged by its member countries earlier in 2026.

Approximately 71 million barrels are expected to become available to the market by the end of February 2027. This includes around 15 million barrels of diesel intended to ease pressure on refined-product supplies.

The emergency release is designed to provide additional market supply while production, refining operations and international shipping recover.

The release of strategic reserves can help reduce immediate shortages, but it is not a permanent replacement for stable commercial production and reliable transportation routes.

The Bigger Picture

The return of global oil supply to surplus marks an important change after months of energy-market disruption. Recovering Gulf exports, higher production and weaker consumption have helped rebuild inventories and reduce pressure on crude prices. The IEA’s outlook also suggests that supply could exceed demand by an even wider margin in 2027.

However, the improvement remains uneven. Crude availability has recovered faster than supplies of diesel and other refined products, while shipping security remains a major concern. The projected surplus also depends on the continued recovery of Middle Eastern exports and the absence of major new disruptions.

Looking Ahead

Oil markets will closely monitor developments around the Strait of Hormuz, production levels among OPEC+ members and the pace at which Gulf exports return to pre-war levels. Any renewed attacks on shipping or energy infrastructure could quickly change the supply outlook. Meanwhile, the expected release of emergency reserves and improving refinery operations could provide additional support to markets over the coming months.

For oil-importing economies such as India, a sustained decline in international crude prices could reduce import costs and ease pressure on inflation and fuel-related expenses. However, domestic fuel prices will also depend on currency movements, refining margins, taxes and government pricing decisions. The next several months will determine whether the current surplus develops into a more durable shift in global energy-market conditions.