“Global oil supply will not meet total demand this year as the Iran war wreaks havoc on Middle East oil production, the International Energy Agency (IEA) said in its monthly oil market report on Wednesday. The US and Israel's war with Iran, subsequent damage to Iran and its Gulf neighbours' oil infrastructure and the effective closure of the Strait of Hormuz have caused the largest oil supply crisis in history, sending oil prices skyrocketing. 'With Hormuz tanker traffic still restricted, cumulative supply losses from Middle East Gulf producers already exceed 1bn barrels with more than 14mn (barrels per day) of oil now shut in, an unprecedented supply shock,' said the agency, which advises industrialised countries. The IEA forecasts imply that supply will come in 1.78mn bpd below total demand in 2026, erasing a 410,000 bpd surplus projected in last month's report and a close to 4mn bpd surplus in its December report. 'Our latest supply and demand estimates imply that the market will remain severely undersupplied through the end of 3Q26, even assuming the conflict ends by early June,' the Paris-based agency said, adding that the second-quarter deficit will be as stark as 6mn bpd. The IEA's base-case forecast is for a gradual resumption of traffic through the strait from the third quarter onwards, it said, which could see the market return to a 'modest surplus' by the fourth quarter, allowing depleted stocks to begin to rebuild. Supply losses led to a 246mn barrel drawdown in global oil inventories in March and April, the IEA said, which could increase price volatility ahead of the peak summer demand period. The 32-member IEA coordinated the largest-ever release of 400mn barrels of oil from strategic reserves in March in a bid to calm markets. It said around 164mn barrels of that total has already been released. Overall global oil supply will fall by around 3.9mn barrels per day across 2026 due to the war, the agency said, slashing its previous forecast, which had projected a 1.5mn bpd drop. The IEA now sees demand falling by 420,000 bpd this year, compared to a previous forecast of an 80,000 bpd drop. Consumption is also under pressure due to the war as price spikes lead to demand destruction and slower economic growth, it said. The IEA said it will publish its first supply and demand forecasts for 2027 in its June report - a delay from April caused by the war - while its 2026 annual oil report will be delayed from June 17 with no new date yet set for its release.
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