IEA suggests oil market is straightening out

The oil market is showing tentative signs of rebalancing, with global oil supplies surpassing demand for the first time since the outbreak of the war in Iran, thanks to a recovery in Gulf exports, according to the IEA’s latest Monthly Oil Market Report

Supply surge

• Global oil supplies surged by 2.3mn bpd to 105.4mn bpd d in October, extending the recovery for a second month, as higher flows from the Gulf more than offset losses elsewhere, despite continuing attacks on shipping and infrastructure.

• Oil inventories rebounded by 52mn bbl (+1.7mn bpd) in October, the first increase since June.

• After a decline of 4.8mn bpd in 2026, global supply is projected to recover in 2027 by 6.6mn bpd to 108.1mn bpd in 2027, including a 5.3mn bpd increase in Gulf production and a further 1.1mn bpd gain from the US Quintet (USA, Canada, Argentina, Brazil and Guyana).

“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 said, while cautioning that the recovery remains fragile, with attacks on shipping threatening to undermine maritime security. Continual infrastructure and maritime security are pivotal to a sustained recovery, the IEA noted.

The tightness of product supply, particularly diesel, remains the main concern, the IEA said, with Russia’s diesel exports curtailed by attacks on its infrastructure, adding to losses from the Gulf.
The release of more IEA emergency diesel stocks over the coming months will help bridge the supply gap until the global refinery system and product output recover.

Recovery in Gulf exports

OPEC+ crude oil supply increased by 2mn bpd in October to 37.7mn bpd, as Middle East output continued to recover, led by Saudi Arabia and Iraq. Gulf producers’ oil exports, excluding Oman, increased by 950,000 bpd m-o-m to 18.4mn bpd, but remained 26% below pre-war levels, with Gulf crude flows rising to 15mn bpd, around 82% of pre-war levels.

• Saudi Arabian crude production rose by 1.1mn bpd in October to 10 mn bpd following a second consecutive month of higher crude loadings. Aramco confirmed in its Q3 results announcement that production commenced at the Zuluf crude oil increment and other major upstream projects are on track, including Jafurah phase two, Fadhili Gas Plant expansion, and Dammam development project, while the East-West Pipeline continues to provide export flexibility.

• Kuwaiti crude supply increased by 450,000 bpd m-o-m to 2mn bpd in October

• Iraq's crude output rose by a 540,000 bpd m-o-m to 4.6mn bpd, its highest level since September 2019, with increased exports from Basrah as well as through the Iraq-Turkiye pipeline to Ceyhan.

Flows through the Strait of Hormuz rose by 440,000 bpd m-o-m to 11.8mn bpd, compared to around 20mn bpd before the conflict, while recovering Saudi East-West Pipeline flows helped lift bypass exports by 510,000 bpd.

Oil price remains volatile

Brent crude current stands at around US$95 per barrel, significantly lower than the mid-October peak of around US$136, but are still much higher than pre-conflict levels. Prices remain volatile, with mixed signals coming from the USA, Iranian attacks on tankers in the Strait of Hormuz continuing and as yet no sign of a peace deal in sight.