IEA Sees Wider Oil Supply Deficit Despite Hit to Demand From War

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(Bloomberg) — Global oil inventories will tumble this quarter at more than twice the rate previously estimated as the Iran war flares again, even as the hit to demand from high prices deepens, the International Energy Agency said. 

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Oil markets face a shortfall of 1.8 million barrels a day as “renewed hostilities and maritime disruptions” undermine a production recovery, the IEA said in its monthly report. For 2026 as a whole, the deficit will likely be the widest in five years.

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Stockpiles are tightening again even as elevated fuel prices prompt the agency to deepen estimates for this year’s decline in global oil demand by almost 50% to 1.6 million barrels a day. That’s the biggest slump in annual average terms since the 2020 Covid pandemic.

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While a brief ceasefire between the US and Iran in mid-June revived oil exports from the Persian Gulf, shipping and regional energy infrastructure are once again under fire. That’s pushing up the cost of fuels such as gasoline and diesel — the workhorse of the global economy — and squeezing consumers. 

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Still, the output declines are far smaller than some of the worst-case scenarios painted early in the war, having been tempered by an array of workarounds. Those include alternative pipelines used by Saudi Arabia and the United Arab Emirates and a network of shuttle tankers plying the Strait of Hormuz. US Energy Secretary Chris Wright said Tuesday that 9 million barrels a day has escaped in the past week, almost half prewar volumes.

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The world’s depleted inventories ought to be replenished next year after oil markets tip back into oversupply, according to the Paris-based IEA. Members of the organization such as the US, Japan and Germany will need to refill emergency oil reserves after announcing a record release of stocks in March, it said.

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“Although the market is projected to return to surplus towards the end of this year, risks remain substantial and the urgency of reopening the Strait has increased, as previously available inventory buffers are rapidly depleting,” the agency said.

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