US-Iran escalation could threaten 2027 oil market surplus, IEA says

An escalation ‌of hostilities between the U.S. and Iran could upend the International Energy Agency's forecast of a significant oil market surplus next year, it said on Friday, as global supply jumped in June when the Strait of Hormuz reopened but still lagged pre-war levels, Reuters reported.

Global oil markets received some respite last month as a peace agreement between the U.S. ​and Iran facilitated the opening of the Strait, the effective closure of which had taken out as much as 14 million ​barrels per day of crude flows during the peak of the largest oil supply crisis in history.

The IEA said ⁠global oil supply rose by 4.1 million bpd in June, but remained 9.4 million bpd below pre-war levels.

LASTING PEACE DEAL NEEDED FOR NORMALISATION

The ​agency predicts supply will expand by 7.5 million bpd next year after a 3.7 million bpd contraction this year, but that is contingent on ​improved Hormuz transits.

"An escalation in hostilities on 7-8 July, however, clouds the outlook and could upend the forecast that sees the market flipping to a surplus next year," it said, adding that a lasting peace agreement is a "must" for oil markets to normalise.

The IEA's 2027 forecasts imply that supply will outweigh demand by 4.62 million ​bpd next year from an 860,000 bpd deficit this year, provided producers can restart fields and refiners can resume normal product shipments.

The Paris-based ​agency, which advises industrialised nations, sees global oil demand falling by 1 million bpd this year, before rebounding to rise 2 million bpd in 2027.

In the nearer ‌term, ⁠it sees the peak summer fuel demand season, together with lower prices, lifting consumption by around 8 million bpd when compared with May's low point at the peak of the crisis.

Much lower oil prices are also incentivising growth in oil use, as is a brightening economic outlook," it said.

Brent crude futures were trading slightly lower on the day on Friday at $75.85 by 0934 GMT. Rival forecaster OPEC will release its own monthly oil ​market report on July 13.