The global oil market will shift into a significant supply surplus in 2027 as it recovers from the closure of the Strait of Hormuz, according to the monthly report released by the International Energy Agency on Wednesday.

An interim agreement to end the Iran war was announced by the United States, featuring the reopening of the strategic strait by Iran and the removal of the American naval blockade, potentially concluding the most severe oil supply disruption in history. The conflict blocked an estimated 14 million barrels per day (bpd) of Middle Eastern crude production.

A dramatic shift will occur next year in the oil market, with the first look at 2027 showing a massive supply surplus as global production surges by 8 million bpd against a demand increase of just 2 million bpd. This projected 2027 surplus could offer a vital reprieve to the market, allowing nations to replenish severely depleted inventories or establish new strategic reserves whilst reviewing energy policies in the wake of the crisis.

Flows through the vital shipping lane were already increasing by early June due to a rise in ship-to-ship transfers in the Gulf of Oman, which lifted total Middle East flows to approximately 12 million bpd from a low of 9.6 million bpd in May. A gradual recovery in Gulf exports and production remains expected if the peace deal holds, particularly as Iranian exports can fully resume once naval restrictions disappear. However, downside risks persist for the regional recovery outlook due to political and operational hurdles, such as prolonged demining efforts and unresolved transit protocols.

For the entirety of 2026, global oil supply will drop by 3.9 million bpd because production losses across the Middle East outpace output growth from the Americas.

-Reuters