The oil market is showing tentative signs of rebalancing, with global oil reserves exceeding demand for the first time since the outbreak of war in Iran. Observed oil inventories increased by 52 mb, or 1.7 mb/d, in October as Gulf exports recovered much faster than global oil demand. North Sea Dated crude oil prices plunged more than 30%, from a high of $136/bbl on October 8 to around $93/bbl at the time of writing, but remained $22/bbl above pre-war levels.
Global oil supplies jumped 2.3 mb/d to 105.4 mb/d in October, increasing production by an extraordinary 5.3 mb/d since August. This sharp increase reduced the year-on-year production decline to 2.9 Mb/d, compared to an average loss of 8 Mb/d in the March-September period. Despite continued attacks on tankers, oil exports from the Gulf, excluding Oman, reached 18.4 mb/d last month, 26% less than pre-war. The recent increase was led by crude oil, with flows reaching 15 mb/d, or 82% of pre-war levels in October. Rising export rates have led to a significant rise in our global oil supply expectations for the remainder of the year, with estimates for 4Q26 raised by 3.3 mb/d. The fourth-quarter rebound helped reduce the 2026 average annual decline to 4.8 mb/d, with losses in the Middle East and Russia partly offset by growth from producers outside the Gulf. Notably, the Quintet of the Americas – the United States, Canada, Brazil, Argentina and Guyana – is on track to increase production by 1.6 mb/d this year. In 2027, global supply is expected to recover by 6.6 Mb/d to 108.1 Mb/d, including a 5.3 Mb/d increase in Gulf production and an additional 1.1 Mb/d gain from the Quintet.
Global oil demand continues to be weighed down by continued disruptions to Gulf refined product and LPG exports, which remain at around half pre-war levels, and high fuel prices. The pace of contraction is nevertheless expected to reduce to 2.7 mb/d year-on-year in 4Q26, compared to declines of 5 mb/d in 2Q26 and 3.8 mb/d in 3Q26 – for an average annual decline of 2.7 mb/d. The deficit from 2025 levels is expected to ease further before shifting to growth around March next year, which would translate into an overall increase of 2 Mb/d in 2027. Petrochemical raw materials – the products most affected by the war – will account for almost 80% of the 2027 gains, while high prices, electrification and energy efficiency of the global car fleet will dampen the rebound of the demand for road fuels.
Our November supply-demand balances suggest the global oil market will return to surplus in 4Q26, with more substantial growth in 2027. As always, downside risks to the forecast persist as attacks on shipping undermine maritime security, which is essential to a sustainable recovery.
For now, the serious shortage of products, particularly for diesel, remains the major concern of the market and consumers as a whole. Persistent attacks on Russian energy infrastructure continue to block the country’s supply of diesel to international markets, worsening the Middle East’s losses. At the same time, refineries in the Atlantic Basin, particularly in the United States, are struggling to generate high margins, while better crude availability in Asia and export quotas for Chinese fresh produce could support higher production rates at the region’s refineries. Notably, the accelerated release of emergency diesel stocks from the IEA over the coming months will provide a critical bridge to closing the supply gap until the global refining system and product production recovers.
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