IEA Sees Oil Market Flipping to Surplus as Gulf Exports Recover

Global oil supply climbed 2.3 million b/d month-on-month to 105.4 million b/d in October, and the International Energy Agency now expects the market to swing back into surplus by fourth-quarter 2026, with a more substantial surplus in 2027. The Nov. 13 Oil Market Report is, in effect, a story of two markets: crude flowing again from the Gulf, and refined products — diesel above all — still squeezed hard for consumers.

Output has risen 5.3 million b/d since August as Gulf exports recovered, even with continued attacks on energy infrastructure and commercial tankers. The agency lifted its fourth-quarter 2026 supply estimate by 3.3 million b/d on that stronger outlook. For the full year, it still expects global supply to decline by an average 4.8 million b/d before rebounding 6.6 million b/d in 2027 to average 108.1 million b/d.

That supply recovery has already worked its way into price. North Sea Dated crude fell 32% from an early-October high of $136/bbl to about $93/bbl at the time of the report — though still $22/bbl above prewar levels.

How far have Gulf exports come back?

Gulf oil exports excluding Oman reached 18.4 million b/d in October, roughly 26% below prewar levels. Crude did most of the work, hitting 15 million b/d, or 82% of prewar volumes. The IEA cautioned that continued attacks on shipping remain a significant downside risk to that recovery.

Where is demand heading?

The agency forecasts global demand to contract 2.7 million b/d in 2026 to 102.3 million b/d, hit by disrupted Gulf product and LPG exports, elevated fuel prices and weaker consumption across major markets. The contraction should moderate in the fourth quarter to 2.7 million b/d year-on-year, against an average decline of 4.4 million b/d in the second and third quarters. A rebound of about 2 million b/d is expected in 2027, to 104.3 million b/d.

The recovery will be uneven across barrels:

• LPG, ethane and naphtha should account for nearly 80% of incremental 2027 demand as petrochemical feedstock improves.
• Gasoline and diesel consumption are forecast to stay nearly flat as high fuel prices speed electrification and fleet efficiency gains.
• Chinese demand fell 1.3 million b/d year-on-year in September, a 7.1% drop, with declines across every major product; the IEA sees a 560,000-b/d contraction in 2026 before a 540,000-b/d recovery next year.
• US demand is expected to slip 130,000 b/d in 2026 and stay roughly flat in 2027.

Why is diesel still the problem?

Refined product markets remain tight even with crude more available. Global refinery runs fell 1.3 million b/d month-on-month to 81.3 million b/d in October as seasonal maintenance peaked, and are expected to recover to 84.7 million b/d in December. Throughputs should rise 2.5 million b/d in 2027 to average 84.3 million b/d for the year.

Margins weakened in October as record freight costs squeezed refiners, particularly in Asia; US refiners gained from cheaper domestic crude, though softer gasoline prices ate into the advantage. In the Atlantic Basin, middle distillate cracks averaged about $80/bbl in October against $22/bbl for gasoline, while naphtha and fuel oil cracks sat heavily negative for much of the period. European diesel prices fell 11% from early-October levels but held near $180/bbl — about 77% above prewar levels.

Russian attacks on energy infrastructure have further constrained diesel supply, though Russian net product exports rose 20% in October, with diesel exports doubling to 270,000 b/d, their highest since June. The IEA expects accelerated releases of emergency diesel stocks to bridge the gap until refinery output recovers.

What are inventories saying?

Observed global inventories rose 52 million bbl (1.7 million b/d) in October — the first monthly build since June — but the increase was all on water, up 86 million bbl to its highest since January as Gulf crude moved. Land inventories kept falling and sit at their lowest since at least 2016. OECD stocks dropped 47 million bbl, including a 41-million-bbl decline in industry holdings. Cumulatively, observed global inventories are down 462 million bbl since the war began.

IEA members have released about 349 million bbl of emergency stocks since Mar. 11, with another 71 million bbl scheduled through February 2027 — roughly 600,000 b/d of extra supply — including about 15 million bbl of diesel, mainly from French and German government stocks.

The surplus is coming, says the IEA — but renewed attacks on shipping or energy infrastructure, and tight diesel, could still rewrite the ending.