Global Oil Supply Has Dropped 12.8 Million Barrels a Day – No Quick Fix Ahead?

The International Energy Agency (IEA) said global oil markets will remain severely undersupplied through the end of the third quarter of 2026, even if the US-Iran conflict ends by early June. The oil shock from the war has destabilized markets, prompting many countries to take measures to conserve fuel. Why a Firm Ceasefire Will Not End the Oil Shock In its latest report, IEA highlighted that global oil supply has fallen by 12.8 million barrels per day since hostilities began. Output from Strait of Hormuz countries is down 14.4 million barrels per day from pre-war levels. The agencys data points to a 1.78 million bpd shortfall in 2026. That marks a sharp reversal from the 410,000 bpd surplus estimated in last months outlook and the nearly 4 million bpd oversupply forecast in December. The IEA base case assumes that flows through the strait will gradually resume from June. Even so, the supply-demand gap reaches 6 million bpd from March to June. The agency made the point directly in its May report. The market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June (our base case), the report read. Supply begins a slow recovery from 3Q26 but does not catch up with demand until October when the balance edges into a modest surplus. That overhang barely begins to offset the stock deficit accumulated since end-February. The agency also projects a cumulative oil liquids deficit of 900 million barrels by September 2026. That figure includes the IEAs coordinated release of 400 million barrels, leaving around 500 million barrels to be covered through industry stock draws. Restoring those inventories, including strategic reserves, would likely require an additional 1 million barrels per day of supply beyond expected demand growth over the next three years. While most of the deficit is concentrated in crude oil, tight refined product inventories could further complicate replenishment efforts. The IEA also projects demand will decline by 420,000 barrels per day this year, versus its earlier estimate of a modest 80,000 bpd decrease. With demand weakness only partly offsetting the large supply shortfall, inventories keep falling until the final quarter of the year when a modest projected surplus begins to rebuild depleted stocks leaving market tight well beyond 2026, the IEA added. Earlier, HFI Research said the oil market had already crossed its breaking point by mid-April, while warning that logistical bottlenecks could slow the pace of any recovery.