Key facts
- Oil prices rose on Wednesday due to uncertainty surrounding a potential U.S.-Iran deal.
- The IEA forecasts a significant global oil supply overhang in 2027.
- Global oil supply is projected to surge by 8 million b/d in 2027, while demand is expected to rise by 2 million b/d.
- The IEA has lowered its 2026 oil demand forecast.
- A potential U.S.-Iran peace agreement could lead to a recovery in Middle East production and exports.
Oil prices saw a modest increase on Wednesday, driven by President Donald Trump's remarks suggesting a potential resumption of bombing against Iran, though gains were limited by the International Energy Agency's (IEA) stark warning of a substantial oil supply surplus expected in 2027. Brent crude futures were up 0.7% to $79.50 a barrel, and U.S. West Texas Intermediate gained 0.6% to $76.54.
The IEA's outlook indicates that global supply is poised to surge by 8 million barrels per day in 2027, significantly outpacing an anticipated demand increase of 2 million bpd. This scenario points to a considerable overhang that could allow for the replenishment of depleted inventories or the building of strategic reserves.
The agency estimates that the Iran conflict blocked more than 14 million bpd of Middle Eastern oil production and exports, triggering massive inventory drawdowns. Oil inventories have fallen at a rate of 3.8 million bpd since the outbreak of the war in late February, with stock draws accelerating to roughly 4.6 million bpd in May. The IEA cautioned that a full recovery remains uncertain due to political uncertainty, demining operations, and unresolved shipping arrangements.