IEA: Escalation between US and Iran could threaten oil surplus in 2027

An escalation of hostilities between the US and Iran could jeopardize the IEA's (International Energy Agency) forecast of a significant surplus in the oil market next year, the agency said on Friday (10), at a time when global supply increased in June, when the Strait of Hormuz was reopened, but still fell short of pre-war levels.

Global oil markets got some relief last month when a peace deal between the US and Iran facilitated the reopening of the strait, where the flow of up to 14 million barrels per day of crude oil was disrupted during the height of the biggest oil supply crisis in history.

The IEA reported that global oil supply increased by 4.1 million bpd in June but remained 9.4 million bpd below pre-war levels.

The agency forecasts that supply will increase by 7.5 million bpd next year, after a contraction of 3.7 million bpd this year, but this depends on improved transits through the Strait of Hormuz.

"An escalation of hostilities on July 7 and 8, however, clouds the outlook and could jeopardize the forecast that the market will turn into a surplus next year," the agency said, adding that a lasting peace agreement is "indispensable" for oil markets to normalize.

IEA forecasts for 2027 indicate that supply will exceed demand by 4.62 million bpd next year, compared with a deficit of 860,000 bpd this year, provided that producers can resume production in the fields and refineries can resume normal product shipments.

The Paris-based agency, which advises industrialized nations, forecasts global oil demand to fall by 1 million bpd this year, before recovering to increase by 2 million bpd in 2027.

In the short term, the agency predicts that the peak fuel demand season in the summer, combined with lower prices, will increase consumption by around 8 million bpd compared to the lowest point recorded in May, at the height of the crisis.

"Much lower oil prices are also encouraging growth in oil use, as are more optimistic economic prospects," the agency said.

Brent oil futures were trading slightly lower this Friday, at US$75.85 at 6:34 am (Brasília time). OPEC will release its own monthly oil market report on July 13.

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Source: CNN