Global oil inventories to fall by 2.6 million bpd on war disruptions

The global oil market will flip from a projected surplus to a significant deficit of 1.78 million barrels per day (bpd) in 2026, the International Energy Agency said Wednesday, as the war in Iran disrupts Middle East production and drains inventories at a record pace. The Paris-based agency’s revised outlook marks a dramatic reversal from its forecasts before the conflict, which had anticipated a market surplus.

"The world will have consumed about 1 billion barrels of inventories until supplies are restored and reach the market," TotalEnergies Chief Executive Patrick Pouyanne said on an earnings call. "Even if the war was to end quickly, prices are expected to remain at high levels."

The IEA estimates that global oil inventories plunged by a combined 246 million barrels in March and April alone. The U.S. Energy Information Administration echoed the bearish sentiment, forecasting in a Tuesday report that global oil stockpiles will fall by 2.6 million bpd this year, a much faster draw than its previous estimate of 300,000 bpd. The EIA now expects production losses to peak at 10.8 million bpd in May.

Even if crude flows through the Strait of Hormuz, a critical chokepoint, were to resume, analysts warn that a return to normal will take months. "There’s going to be a one to two-month time lag between the Strait opening up and the market seeing normal flow," ExxonMobil CEO Darren Woods said, citing the time needed for ships to reposition and deliver cargoes. Goldman Sachs analysts noted that global oil inventories are approaching an eight-year low.

Supply Shock Erases Global Surplus

The war between the U.S., Israel and Iran, and the subsequent effective closure of the Strait of Hormuz, has triggered what the IEA calls an "unprecedented supply shock." The agency reports that cumulative supply losses from Gulf producers have already surpassed 1 billion barrels, with more than 14 million bpd of oil production now shut-in.

This has upended earlier expectations for 2026. The IEA's latest forecast implies supply will fall 1.78 million bpd short of demand, erasing a 410,000 bpd surplus projected just last month. The agency's base case assumes a gradual resumption of traffic through the strait from the third quarter, but it still sees the market as "severely undersupplied" until then. The supply shock has sent crude prices surging, with benchmark Brent hitting $126 a barrel in April, a four-year high.

Refining Capacity Crunch Deepens Deficit

Compounding the crude supply crisis is a major hit to global refining capacity. Attacks tied to the wars in both Iran and Ukraine have knocked out nearly 9% of the world's oil refining capability, according to a Reuters analysis. Twenty refineries in the Middle East have been struck or shut down, taking over 2.3 million bpd of capacity offline. This includes Saudi Arabia's largest plant, the 550,000 bpd Ras Tanura facility.

Separately, Ukrainian drone attacks on Russian energy infrastructure have forced about 700,000 bpd of Russian crude processing offline between January and May. The outages are having a disproportionate impact on refined products like diesel and jet fuel. Europe could face jet fuel shortages as early as June, the IEA has warned, and EU diesel prices at the pump hit a record 2.11 euros per litre in April.

This article is for informational purposes only and does not constitute investment advice.