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(Sharecast News) - Global oil demand is recovering from its May low, according to the International Energy Agency on Friday, but renewed fighting between the US and Iran threatens to derail expectations that the market will return to surplus next year.
In its July Oil Market Report, the agency said oil consumption was set to rise on seasonal trends and as pent-up demand was released alongside improving product supplies.
Global demand, which fell to 97.9m barrels a day in May, was forecast to increase by more than 8m b/d by October, taking it above 2025 levels for the first time since February.
However, the IEA still expects demand to decline by 1m b/d in 2026 as a whole before rebounding by 2m b/d in 2027, leaving the two-year pace of expansion well below historical trends.
The outlook was complicated by an escalation in hostilities on 7 and 8 July, which the agency said could upend its forecast for the market to move into surplus next year. Its projections assume tanker traffic through the Strait of Hormuz gradually recovers, allowing Gulf producers to restart fields and refineries to resume product shipments.
Global oil supply rebounded by 4.1m b/d in June to 98.8m b/d, supported by a partial recovery in Gulf production as flows through the Strait resumed. Even so, output remained 9.4m b/d below pre-war levels.
Benchmark crude prices erased their wartime gains during June as Gulf tanker traffic improved. North Sea dated crude fell byt $20/bbl over the month to around $68/bbl, before rising to about $77 after the ceasefire was breached.
The IEA added that crude markets appeared relatively well supplied, while refined product markets remained tight, pushing refinery margins and product cracks to four-year highs in early July.
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