Global oil supply staged a sharp rebound in June as tanker traffic through the Strait of Hormuz partially resumed under a US-Iran ceasefire, but renewed hostilities in early July have thrown that recovery into question, the International Energy Agency (IEA) said in its latest Oil Market Report.
World oil supply jumped 4.1 million b/d month-on-month to 98.8 million b/d in June as OPEC+ producers, led by Saudi Arabia and Kuwait, restored output following the mid-June framework agreement between Washington and Tehran. Total output nonetheless remained 9.4 million b/d below pre-war levels.
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That recovery proved short-lived. Following drone strikes on two commercial tankers, hostilities escalated sharply since July 7, with Iranian forces reportedly targeting multiple vessels near the strait and prompting US retaliatory strikes on Iranian military assets. The US Treasury subsequently revoked General License X, which had authorized sales of previously sanctioned Iranian crude, on July 7. Tanker traffic through the waterway has since ground to a near standstill, IEA said.
Benchmark crude prices reflected the volatility. North Sea Dated crude tumbled $22/bbl month-on-month in June to average $85.17/bbl as the ceasefire raised prospects of oversupply, sliding as low as $70.28/bbl by the end of the month, the lowest level since the war began. Prices partially reversed following the early-July escalation.
IEA cautioned that its outlook for a 2026 supply decline of 3.7 million b/d to 102.6 million b/d, and a rebound of 7.5 million b/d in 2027, hinges on a swift de-escalation of the conflict. The agency said normalization of Middle East production and refined product flows remains contingent on a lasting resolution, which has yet to materialize.
Global oil demand, which bottomed at 97.9 million b/d in May, is still expected to recover through the second half of 2026 as pent-up demand and lower prices spur consumption, particularly in the US. IEA projects full-year 2026 demand will fall 1 million b/d year-on-year, the first annual contraction since the pandemic-hit 2020—before rebounding 2 million b/d in 2027.
“It bears noting that this year’s contraction is highly skewed in both product and regional terms. Petrochemical feedstocks, LPG/ethane, and naphtha accounted for almost half of the drop, as the closure of the Strait of Hormuz played havoc with Middle Eastern production and exports. The bulk of these volumes are typically destined for Asia; accordingly, the region represents almost two-thirds of the global quarterly decline. China’s 1.5 million b/d (-9%) decrease was by far the largest globally,” IEA said.
Refining, product markets
Despite the crude supply rebound, refined product markets stayed tight. Global refinery crude runs rose 1.5 million b/d in June but remained 6 million b/d below year-ago levels, with Middle East export refineries yet to restart and Russian throughput curtailed by intensifying Ukrainian drone attacks. Russian crude runs fell to 3.8 million b/d in June, their lowest since 2004. Moscow imposed a full diesel export ban through end-July on July 8.
Gasoline and naphtha cracks surged to 4-year highs in early July as the divergence between falling crude prices and tight product supply widened, with global refining margins hitting their highest levels since 2002 in some regions.
Inventories
Global observed oil inventories rose 21 million bbl in June, the first monthly build in four months, driven by a 117 million-bbl increase in oil on water. Onshore stocks continued to draw, falling 96 million bbl, with OECD government stock releases contributing an estimated 44 million bbl of the 62 million bbl OECD draw. IEA member countries have released roughly 276 million bbl of the 400 million bbl committed under the Mar. 11 collective action.
