Tensions in the Middle East batter oil market: Supply set to fall far more than expected

Global daily oil supply will fall by 5.7 million barrels to 100.7 million barrels this year, the International Energy Agency (IEA) forecast today in its regular monthly report on the oil market. In its July report, it had expected a decline of 4.3 million barrels per day.

Suspended talks and renewed attacks between the United States and Iran are therefore likely to further delay a return to normal on the global oil market, with the agency now expecting supplies from Middle Eastern producers to be fully restored only in 2027.

At the time the report was published, North Sea oil was trading at around 105 dollars per barrel, 21 dollars higher than at the start of August and 45 percent higher than before the war. Diesel prices have risen even more sharply. In the United States, they topped 200 dollars per barrel for the first time in the first half of September, 94 percent higher than before the conflict, while Europe and Asia are not far behind.

According to the IEA, losses in crude oil exports have fallen to just under 45 percent, thanks to increased supplies bypassing the Strait of Hormuz and US military escorts protecting tankers transiting the strategic waterway.

Exports of refined products and liquefied petroleum gas (LPG) remain almost 60 percent (3.7 million barrels per day) below February levels. According to the IEA, production equivalent to more than ten million barrels per day remains offline in the Persian Gulf. Global oil supply fell by 1.6 million barrels per day in August to 100.1 million barrels per day.

Global observed oil inventories fell by a further 95 million barrels in August, primarily due to a significant decline in oil at sea, which fell by 65 million barrels. Inventories outside OECD countries fell by 52 million barrels, mainly in China.

Inventories in OECD countries, by contrast, rose by 23 million barrels, as an increase in commercial stocks outweighed a 19 million-barrel decline in government reserves. Since February, when they began to fall, global inventories have declined by a total of 507 million barrels, equivalent to an average drop of 2.8 million barrels per day.

The International Energy Agency brings together 32 member countries. The conflict in the Middle East escalated when the United States and Israel jointly launched air strikes on Iran in late February. Since then, Tehran has largely blocked shipping through the Strait of Hormuz, with brief interruptions. Before the conflict began, around a fifth of the world's oil supplies passed through the strait.