IEA cuts global oil supply outlook as US-Iran conflict disrupts Strait of Hormuz

The resumption of hostilities between the United States and Iran has deepened disruptions to maritime shipping through the Strait of Hormuz, pushing the projected decline in global oil supply further beyond earlier forecasts.

The International Energy Agency said in its August oil market report, released Wednesday, that global oil supply will fall by an average of 4.3 million barrels per day this year — 600,000 barrels per day more than the 3.7 million barrel-per-day decline it projected last month.

The IEA said the continued closure of the Strait of Hormuz and elevated oil prices are weighing not only on supply but also on consumption.

Global oil demand is now expected to fall by an average of 1.6 million barrels per day this year, 510,000 barrels per day more than the agency forecast in its July report.

However, the IEA said the pace of demand decline is expected to ease gradually, with consumption returning to growth in the fourth quarter. Global oil demand is forecast to rise by 2.4 million barrels per day next year.

Crude output in the Gulf region rose by 2.5 million barrels per day in July, following a 3.7 million barrel-per-day increase in June, bringing total output to 23.9 million barrels per day. Even so, production remains 8.3 million barrels per day below pre-war levels.

Export conditions have deteriorated further. Gulf crude exports — including volumes rerouted around the Strait of Hormuz — fell by 2.1 million barrels per day to 15 million barrels per day in July, as the strait closed again in early July and attacks on energy infrastructure and oil tankers continued.

Shipment volumes peaked at 20 million barrels per day in early July before conditions worsened, dropping to 12 million barrels per day by month's end.

The maritime disruptions have also drained global crude inventories. World crude stocks plunged 69 million barrels in July, as renewed export disruptions from the Gulf and Caspian regions sharply reduced seaborne crude volumes.

As a result, global crude inventories at the end of July fell below 7.9 billion barrels for the first time since April last year.

The IEA said the oil market could return to oversupply toward the end of this year, but added that the rapid drawdown of inventories makes restoring normal transit through the Strait of Hormuz — the world's key crude shipping route — urgent.