Market Speaks: IEA says recovery in Middle East oil supply was well underway in Sep-26, expects more turmoil oil markets in months ahead

International Energy Agency or IEA has stated in its latest monthly update that a recovery in Middle East oil supply was well underway in September, with Gulf crude oil exports approaching pre-war levels. However, the recent escalation in attacks on regional energy infrastructure and tanker traffic is threatening to derail further gains. At the same time, record tanker rates raised crude delivery costs and eroded refinery margins. Brent crude futures have risen by 13% since the start of September to around $107/bbl. Physical markers have increased much more, with North Sea Dated up by 43% to $134/bbl and other North Sea grades trading up to $160/bbl.

Crude oil exports from Gulf producers, led by Saudi Arabia, surged by 4.4 mb/d to 13.9 mb/d in September, reaching over 75% of pre-war levels as supply recovered strongly and inventories were drawn down. Robust Gulf of Oman ship-to-ship transfers helped lift total oil flows through the Strait of Hormuz by 3.7 mb/d to 10.9 mb/d, while the swift return of East-West pipeline flows increased overall bypass exports by 970 kb/d to 5.6 mb/d. The strong rebound raised estimated global supply for 3Q26 by 190 kb/d compared with last month’s Report. However, due to heightened security concerns amid increased Houthi attacks in the region in October, we have left the projections for the remainder of the year largely unchanged. As such, global oil supply is expected to average 101.4 mb/d over the second half of the year, up from 96.4 mb/d in 2Q26.

However, IEA noted that despite lower demand, oil market balances are forecast to remain in deficit through the end of the year, with constrained middle distillate supplies likely to persist well into 2027. Global observed oil stocks edged down in September, as a 103 mb surge in oil on water amid a sharp rise in Gulf exports was more than offset by a further 113 mb decline in on-land inventories. Cumulative global observed inventories were a steep 509 mb below pre-war levels by the end of September, with on-land stocks hovering at their lowest levels since at least 2016. As the remaining buffers in the system continue to erode, in the absence of a resolution to the conflicts in the Middle East, oil markets may experience more turmoil in the months ahead before any eventual surplus emerges in 2027.

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