The International Energy Agency (IEA) is expecting the global oil market to return to surplus in the fourth quarter of 2026 as recovering Gulf exports boost supply, although disruptions to refined product shipments and high fuel prices continue to weigh on demand, according to the agency’s November oil market report.

Global oil supply rose by 2.3 million barrels per day (mmbbl/d) month-on-month (MoM) to 105.4 mmbbl/d in October, following a 3 mmbbl/d increase in September. Output has climbed by 5.3 mmbbl/d since August, despite continued attacks on energy infrastructure and tankers.

The agency raised its global supply forecast for the fourth quater (Q4) of 2026 by 3.3 mmbbl/d, while projecting a decline of 4.8 mmbbl/d for the full year. Supply is expected to rebound by 6.6 mmbbl/d in 2027 to an average of 108.1 mmbbl/d, including a 5.3 mmbbl/d increase in Gulf production.

Meanwhile, global oil demand is forecast to decline by 2.7 mmbbl/d in 2026 to 102.3 mmbbl/d, before recovering by 2 mmbbl/d in 2027. The year-on-year (YoY) contraction is expected to narrow to 2.7 mmbbl/d in 4Q 26, compared with an average decline of 4.4 mmbbl/d in 2Q 26 and 3Q 26.

Petrochemical feedstocks, particularly liquefied petroleum gas (LPG), ethane and naphtha, are expected to account for around 80% of demand growth in 2027 as supply chains normalise. Transport fuel demand is projected to record only modest gains amid high prices, vehicle electrification and improved fuel efficiency.

Global observed oil inventories increased by 52 mmbbl/d in October, or 1.7 mmbbl/d, marking the first monthly build since June. However, onshore stocks continued to decline and remained at their lowest level since at least 2016. Inventories have fallen by a cumulative 462 mmbbl/d since the outbreak of the war.

North Sea Dated crude prices fell by 32% from a peak of $136 per barrel in early October to around $93 per barrel at the time of the report, as recovering Gulf exports eased market tightness. Nevertheless, diesel prices in Europe remained close to $180 per barrel, 77% above pre-war levels.

The IEA warned that tight refined product supplies, particularly diesel, remained a major concern. Disruptions to Russian and Middle Eastern exports have constrained international supplies, while attacks on shipping continue to threaten a sustained recovery in global oil flows.