The International Energy Agency (IEA) said the interim agreement between the US and Iran to reopen the Strait of Hormuz is expected to support a gradual recovery in oil exports and ease supply disruptions that have weighed on global markets for the past four months.
Global oil supply is forecast to decline by 3.9 million barrels per day (bpd) year-on-year to 102.4 million bpd in 2026 before rebounding by 8 million bpd to 110.3 million bpd in 2027 as Middle Eastern production returns, the agency said in its May Oil Market Report released on Wednesday.
Global oil supply fell to 94.5 million bpd in May, down 600,000 bpd from April and 13.6 million bpd below pre-war levels, largely due to the US naval blockade that sharply curtailed Iranian exports.
OPEC+ output dropped by 1.1 million bpd month-on-month to 35.9 million bpd, while non-OPEC+ production rose by 530,000 bpd, supported by higher output in the US, the UAE and the biofuels sector.
Exports from Gulf producers declined by 1.1 million bpd in May to 9.6 million bpd and remained nearly 15 million bpd below February levels.
Iranian crude exports through the Strait of Hormuz plunged by 1.4 million bpd to just 230,000 bpd, though part of the losses were offset by increased ship-to-ship transfers in the Gulf of Oman.
The recovery in Gulf production is expected to be gradual as shipping companies remain cautious about returning to pre-war routes until security concerns, mine-clearance efforts and transit fee disputes are resolved.
Saudi Arabia is projected to lead the rebound, adding 4.6 million bpd between the second and fourth quarters of 2026, while other Gulf OPEC+ producers are expected to increase output by a combined 4.8 million bpd.
Outside the Middle East, supply growth continues to be led by the Americas. US oil production reached a record 22 million bpd in May, while total crude and petroleum product exports climbed to an all-time high of 13.1 million bpd.
Meanwhile, Russia’s production outlook has been revised lower as continued Ukrainian drone attacks on energy infrastructure disrupt both upstream operations and exports.
– Oil demand forecast cut for 2026
Global oil demand fell sharply in April and May as the impact of the conflict between the US/Israel and Iran became increasingly evident in official data, prompting a substantial downgrade to the 2026 outlook.
Preliminary estimates show global oil consumption is set to decline by around 5 million bpd, or 4.8%, year-on-year in the second quarter, weighed down by higher fuel prices and supply disruptions. If confirmed, it would mark the first quarterly contraction in demand since 2020.
The 2026 demand forecast has been revised down by 700,000 bpd from last month’s report, with global consumption now expected to decline by 1.1 million bpd on average this year.
Following the interim agreement between the US and Iran to extend the ceasefire and restore flows through the Strait of Hormuz, conditions are expected to improve in the second half.
Demand is projected to fall by 1.7 million bpd in the third quarter before returning to growth of 1.1 million bpd in the final quarter of 2026.
The sharpest declines have been recorded in Asia and the Middle East, particularly in China, South Korea and Japan, while demand has also weakened in India, Southeast Asia and Europe.
The OECD Americas has remained relatively resilient, supported by steady economic activity in the US and continued growth in LPG and ethane consumption.
Demand is projected to accelerate again in 2027 as Gulf supply normalizes, rising by approximately 2 million bpd to reach 105.3 million bpd.
However, the report noted that the 2027 outlook remains subject to significant uncertainty due to geopolitical risks, the sustainability of the ceasefire, and the broader economic impacts of the conflict.
