IEA predicts major oil surplus in 2027 as Hormuz reopening sparks supply rebound

The global oil market is heading towards a significant supply glut in 2027 as the reopening of the Strait of Hormuz and the recovery of Middle East crude flows are expected to unleash millions of barrels back into the market, the International Energy Agency (IEA) said in its latest monthly oil market report.

The agency said global oil supply could rise by nearly 8 million barrels per day (bpd) in 2027, while demand is expected to increase by only around 2 million bpd, creating a large imbalance after months of severe disruption.

The outlook comes after the United States announced an interim agreement aimed at ending the Iran war. The deal includes the reopening of the Strait of Hormuz and the removal of the US naval blockade on Iran — moves that could reverse what the IEA described as the largest oil supply disruption in history.

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According to the IEA, the conflict had blocked more than 14 million bpd of Middle East oil output, severely tightening global supplies and draining inventories.

“If the deal holds, exports and production from the Gulf should see a gradual recovery — not least because Iranian oil exports can fully resume once the US blockade is lifted,” the agency said.

Middle East oil flows bounce back

The IEA said oil shipments through the Strait of Hormuz had already started improving by early June, helped by increased ship-to-ship transfers in the Gulf of Oman.

Total Middle East crude flows recovered to nearly 12 million bpd in early June, compared with a May low of 9.6 million bpd.

However, the agency warned that risks remain, including political uncertainty, delayed demining operations and unresolved shipping arrangements that could slow a full recovery.

For 2026, the IEA expects global oil supply to decline by 3.9 million bpd, as losses from the Middle East outweigh production growth from other regions, particularly the Americas.

Meanwhile, Russian crude and fuel exports remained steady at around 7.4 million bpd in May despite continued Ukrainian drone strikes targeting refineries. The attacks forced Moscow to prioritise domestic fuel availability while maximising crude exports.

Demand hit by high prices and war impact

The agency expects global oil demand to decline by 1.1 million bpd in 2026, following a sharp 5 million bpd drop during the April-June period. The IEA said demand weakness has spread beyond regions directly affected by the Iran war, with consumption of major fuels—especially gasoil—showing pressure across nearly all markets.

However, demand is expected to rebound in 2027 as lower oil prices and an improving economic outlook support consumption. Separately, OPEC lowered its forecast for 2026 oil demand growth to 970,000 bpd, highlighting continued uncertainty around global consumption trends.

Massive surplus could reshape oil markets

Based on IEA projections, the oil market could face a supply surplus of around 5.05 million bpd in 2027 as returning Middle East production overwhelms demand growth.

The agency said the surplus could offer countries a chance to rebuild depleted inventories and expand strategic reserves after months of supply stress. However, the IEA cautioned that global stockpiles may fall further before the market moves into surplus. Inventories have already declined at a rate of 3.8 million bpd since the start of the Iran conflict on February 28, with May stock draws estimated at around 4.6 million bpd.

The expected transition from shortage to surplus marks a dramatic shift for the global energy market, potentially easing price pressures after a period of extreme volatility.