The global oil market could undergo a radical change in the next two years. After the shock caused by the war between Iran and the USA-Israel alliance, which significantly reduced production and global consumption, the International Energy Agency (IEA) estimates that the world could face a significant oil surplus in 2027.
According to the IEA’s most recent monthly report, cited by CNBC, global oil demand is increasing much slower than previously anticipated, while production could rebound strongly once exports from the Persian Gulf states normalize.
Revised Decrease in Oil Demand
The IEA has lowered its estimate for global oil demand growth in 2026 to 1.1 million barrels per day, 700,000 barrels less than the previous forecast.
The revision comes after the Middle East conflict heavily impacted the energy market. In the second quarter of the year, global oil deliveries dropped by approximately 5 million barrels per day, and global production fell to 94.5 million barrels per day in May, 600,000 barrels less than in April.
The agency's experts say that the effects of the war have not been limited to disrupting the supply. High fuel prices and a shortage of refined products have started to affect consumption as well, contributing to a slowdown in demand.
Significant Surplus Possible in 2027
After the decline in 2026, the IEA estimates that global oil production will rebound strongly in the following year.
Global supply is expected to reach around 110.3 million barrels per day in 2027, nearly 8 million barrels above the estimated level for the previous year. At the same time, global demand is projected to increase by only 2 million barrels per day, up to 105.3 million barrels daily.
“Our initial estimates for 2027 indicate the emergence of a significant surplus in the market,” the IEA report states.
The difference between the production growth rate and the consumption rate could put pressure on prices and change the current market balance.
It All Depends on the Agreement Between the US and Iran
The IEA report comes at a time when investors are monitoring the implementation of the agreement negotiated by President Donald Trump's administration with Iran, which entails ending the conflict and reopening the Strait of Hormuz.
This route is one of the most crucial for global energy trade, with approximately 20% of globally transported oil passing through it under normal circumstances.
The agency estimates that production and exports from the Persian Gulf states will gradually recover if the agreement is adhered to. The resumption of Iranian exports, after the lifting of the American naval blockade, will also play a significant role.
However, a complete return to normalcy will not be immediate. Marine mines laid during the conflict need to be cleared, and logistical chains require time to return to normal parameters.
Global Stocks Continue to Plummet
In the short term, however, the oil market remains under pressure.
Global oil stocks decreased by 143 million barrels in May, following a 74 million barrel reduction in April. Since the start of the conflict, global reserves have diminished by approximately 3.8 million barrels per day.
The IEA warns that before a potential surplus in 2027, stocks could plummet to historic lows. This could maintain high volatility and price fluctuations in the oil market in the coming months.