International Energy Agency Sees No Return to Prewar Energy Market Conditions in 2027
Key Facts
Fatih Birol, executive director of the International Energy Agency, said he sees no credible path for energy markets to return to their pre-Iran war conditions in 2027. The outlook comes as the agency expects the oil market to remain in deficit through the end of the year, with middle distillate supplies staying tight into 2027. That puts diesel at the center of concern as the winter demand season approaches, after agency data showed global diesel and gasoil availability falling from a year earlier. The agency also sees little prospect of rebuilding depleted inventories before the second half of 2027, outside normal seasonal fluctuations. In the Brent market, the daily close was $115.81 per barrel on October 26, down from $116.72 on October 23.
Disruptions to Middle East exports, alongside lower supplies from Russia and some Asian countries, reduced global diesel and gasoil availability by 1.5 million barrels per day in the second quarter of 2026 and 1.7 million in the third quarter, compared with the same periods a year earlier. In September, global diesel exports were 700,000 barrels per day lower year on year. The IEA attributed this to a loss of 1.3 million barrels per day in exports from Russia and the Middle East, not fully offset by increased supplies from other sources. The figures highlight the gap between crude oil flows and the availability of products ready for consumption. The recovery in crude exports from Gulf producers was not matched by a similar recovery in shipments of refined products and liquefied petroleum gas from the region.
Middle East shipments of refined products rose by 210,000 barrels per day to 1.9 million barrels per day in September, but remained below half the prewar level of 4.7 million barrels per day. Liquefied petroleum gas shipments increased by 90,000 barrels per day to 670,000, compared with a previous level of 1.5 million barrels per day. By contrast, crude exports from Gulf producers, led by Saudi Arabia, surged by 4.4 million barrels per day to 13.9 million in September, exceeding 75% of prewar levels. The agency says this improvement in crude has not dispelled security concerns, which have kept its outlook for the rest of the year little changed. It also cited an escalation in Houthi attacks in October among the security factors constraining the outlook.
The agency expects global refinery runs to fall to 81.3 million barrels per day in October, a seasonal low, before rising to 84.6 million by year-end. Still, it expects total refinery runs to decline by 2.3 million barrels per day in 2026, then rise by 2.8 million in 2027. The Oil Market Report said record shipping and crude costs pressured refining margins in Europe and Asia, while discounted feedstock supplies lifted U.S. refinery margins to new record highs. The expected increase in runs will not be enough to meet gasoil demand in the fourth quarter of 2026, the agency said. It therefore does not expect lost inventories to be replenished, after seasonal fluctuations are excluded, before the second half of 2027.
Observed global oil inventories fell by 10 million barrels in September, although a 113 million-barrel decline in onshore stocks was largely offset by an increase in oil in transit at sea. Crude inventories in non-OECD economies fell by 76 million barrels, with China accounting for 78% of the decrease, while stocks in OECD countries declined by 37 million. By the end of September, global inventories were 509 million barrels below their level at the end of February. That gap helps explain the difficulty of restoring market balance even as some crude flows improve. The agency said rebuilding depleted inventories will take time, alongside continued tightness in middle distillate supplies.
The International Energy Agency expects global oil demand to fall by 2.5 million barrels per day year on year in the fourth quarter of 2026, and by 2.6 million barrels per day on average for the year. The agency says constraints on product availability, higher fuel prices and a deterioration in the economic outlook linked to the war account for some of the decline, with diesel contributing 25%. In 2027, it expects a partial recovery in oil use of 2 million barrels per day, but demand will remain about 620,000 barrels per day, or 0.6%, below the 2025 level. On the supply side, global supply rose by 2.5 million barrels per day month on month to 102.3 million in September, driven by Gulf producers. The agency expects average supply to fall by 5.8 million barrels per day to 100.7 million in 2026, before rising by 7.7 million in 2027.
The agency says the oil market will remain in deficit through the end of 2026 and that tight middle distillate supplies are likely to persist into the following year. It also concluded that gasoil supplies will not meet demand in the fourth quarter of 2026, making it unlikely that inventories will be rebuilt outside the usual seasonal pattern before the second half of 2027. In a parallel intervention, the agency’s governing board said the total volume planned for release would exceed the original commitment of 400 million barrels, after some members released more than their initial pledges. The agency is scheduled to publish its next Oil Market Report on November 13, 2026. The report will update supply, demand and inventory estimates amid the expected continued deficit.