IEA: Oil output down 12.8m bpd; tight through Q3 2026

The International Energy Agency’s May report found global oil supply has fallen by 12.8 million barrels per day since hostilities began between the United States and Iran. Output from countries that ship through the Strait of Hormuz is down 14.4 million bpd from pre‑war levels. The report warned markets will remain severely undersupplied through end‑Q3 2026 even if the conflict ends by early June.

The IEA’s base case assumes flows through the strait will begin to resume gradually from June. Even with that resumption, the agency projects the supply‑demand gap will widen to about 6 million bpd from March through June. For the full year 2026 the IEA now sees a 1.78 million bpd shortfall, reversing last month’s estimate of a 410,000 bpd surplus and December’s forecast of almost a 4 million bpd oversupply.

“The market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June (our base case),” the report read. The agency projects supply will begin a slow recovery in the third quarter, but not match demand until October, when the market balance is expected to move into a modest surplus.

The IEA projects a cumulative liquids deficit of about 900 million barrels by September 2026. That estimate assumes a coordinated release of 400 million barrels from emergency reserves, leaving roughly 500 million barrels to be covered by commercial stock draws. Restoring inventories, including government strategic reserves, would likely require about an additional 1 million barrels per day of supply above expected demand growth over the next three years.

Most of the deficit is concentrated in crude oil. The agency noted tight refined product inventories could complicate rebuilding stocks and slow the return to normal market functioning. On demand, the IEA trimmed its outlook and now forecasts a decline of 420,000 bpd for 2026, compared with an earlier projection of an 80,000 bpd drop.

Market analysts at HFI Research said the market had crossed a breaking point by mid‑April and warned logistical bottlenecks could delay the pace at which disrupted flows and inventories are restored. Together with the scale of the stock draws the IEA identified, those constraints indicate markets could remain tight beyond 2026 even after headline production resumes.