Global Oil Market Forecast: From Supply Crisis to Huge Surplus
On September 27, 2023, according to a report from Reuters, the International Energy Agency (IEA) issued a notable forecast for the global oil market. Accordingly, the market could move from one of the largest supply crises in history to a surplus of more than 5 million barrels per day next year, if oil production and exports from the Middle East recover after the peace agreement between the US and Iran.
Oil Supply Growth
In its first report for 2027, the IEA predicted global oil supply growth would reach 8 million barrels per day, far exceeding expected demand growth of just 2 million barrels per day. The consequence of this would be a supply surplus of about 5 million barrels per day, creating a completely different market atmosphere after months of war-related shortages.
Production Restoration Assumptions
The IEA's forecast is based on the assumption that oil production and exports from the Gulf will gradually recover once the Strait of Hormuz is reopened and restrictions on Iranian oil exports are lifted.
- Restore export:“If the deal holds, exports and production from the Gulf should see a more or less gradual recovery as Iranian oil exports could fully recover once the US blockade is lifted,” the IEA said in its monthly oil market report.
Impact of the Iran Conflict
The IEA estimates that the conflict with Iran has blocked more than 14 million barrels per day of Middle East oil production and exports, leading to sharp declines in inventories and causing governments around the world to seek alternative sources of supply and new energy security strategies.
| Time | Inventory reduction rate (barrels/day) |
|---|---|
| As of February 2023 | 3.8 million |
| May 2023 | 4.6 million |
According to preliminary IEA data, oil inventories have fallen at a rate of 3.8 million barrels per day since the outbreak of war in late February. The rate of decline has accelerated to about 4.6 million barrels per day in May alone, as governments and refiners have tapped into reserves to fill the gaps.
Risks of Restoration of Supply
Although the IEA predicts that inventories will continue to decline in the short term, it also warns that a full recovery remains far off. Political turmoil, protracted clearance operations and unresolved shipping deals could slow the return of barrels from the Middle East, even after a formal peace deal is signed.
Oil Market Future
While inventories are likely to continue to fall in the near term, a large supply surplus could emerge by the end of 2027, the IEA said. This surplus would allow countries to rebuild depleted emergency stockpiles and replenish commercial inventories after more than a year of significant declines.
This report was produced by Charles Kennedy for Oilprice.com.