The oil market will move into a significant supply surplus in 2027 after recovering from the closure of the Strait of Hormuz, the International Energy Agency said in its monthly oil market report on Wednesday.
The forecast follows the interim agreement to end the Iran war, which includes Iran reopening the strait and the US lifting its naval blockade of Iran, potentially bringing an end to the largest oil supply disruption in history. The war is estimated to have blocked more than 14 million barrels per day (bpd) of West Asia oil output, according to the IEA, hurting major oil-importing nations such as India.
IEA predicts that the oil market will fall into a significant supply surplus next year, the agency said in its first look at 2027, as supply is set to surge by 8 million bpd while demand rises by 2 million bpd.
A large supply surplus in 2027 could “provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis,” the IEA said.
While the world awaits the agreement, oil flows through the Strait were already rising by early June because of a pick-up in ship-to-ship transfers in the Gulf of Oman, the IEA said, helping to boost total West Asian flows to around 12 million bpd from a May low of 9.6 million bpd.
“If the deal holds, exports and production from the Gulf should see a gradual recovery – not least because Iranian oil exports can fully resume once the US blockade is lifted,” the agency, which advises industrialised countries, said.
Oil prices were trading slightly higher on Wednesday, with Brent futures at $79.32 a barrel in the afternoon, up by 36 cents from the previous close.
Gas to flow faster
According to Kpler, the impact on India is likely to vary significantly across commodities. “While India remains one of the largest importers of West Asian hydrocarbons (crude, LPG, and LNG), crude and LNG imports have proven resilient throughout the disruption, unlike LPG, which has been the most affected. As a result, the recovery is likely to be sequential, with LPG flows normalising first, followed by LNG and crude,” Sumit Ritolia, an analyst with Kpler, wrote in a note.
Flow of LPG has been the most severely affected, with imports falling to 51 per cent of pre-war levels, creating the strongest replenishment requirement.