The International Energy Agency (IEA) expects global oil supply to fall by 5.7 million barrels per day (mmbbl/d) in 2026 as continued Middle East disruptions delay the return of normal Gulf oil flows into 2027, according to Reuters.

The decline, equivalent to around 6% of global supply, is steeper than the agency’s previous estimate of about 4%, according to its latest monthly oil market report.

Attacks on oil tankers along Middle East shipping routes have pushed crude prices toward $110 per barrel, while damage to refineries amid conflicts in the Middle East and between Russia and Ukraine has driven refined fuel prices higher.

The IEA also expects global oil demand to decline by 2.5 mmbbl/d this year, compared with its previous forecast for a 1.6 mmbbl/d drop, as high fuel prices weigh on consumption.

However, supply is falling faster than demand, forcing markets to rely increasingly on inventories. Global oil stocks declined by 3.1 mmbbl/d in August to their lowest level since 2023.

“Inventories have so far played a crucial role in balancing the market,” the IEA said.

“With buffers shrinking and the global refining system stretched to the limit, the need for progress in resolving the conflict in the Middle East – and the Russia-Ukraine war, which is now in its fifth year – is greater than ever to avoid further market tightening.”

The IEA expects oil demand to recover by 2.6 mmbbl/d in 2027, while OPEC forecasts a similar increase of 2.36 mmbbl/d.

The latest forecast marks a further deterioration from the IEA’s outlook in May, when it expected global oil supply to decline by about 3.9 mmbbl/d in 2026 and projected a supply deficit of 1.78 mmbbl/d. At the time, the agency expected Gulf oil flows to gradually recover during the third quarter as traffic through the Strait of Hormuz resumed.