IEA: Oil stocks continue to tighten as 1 billion barrels are removed from the market

Mounting supply losses from the Strait of Hormuz closure are depleting global oil inventories at a record pace, almost two months after the start of the Iran war, the International Energy Agency (IEA) has said.

In its May Oil Market Report, the organisation said cumulative supply losses from Gulf producers had already exceeded 1 billion barrels, as it raised its expectations for oil use to decline in 2026.

Meanwhile, OPEC+ output dropped by 1.74 mbpd in April from March to average 33.19 mbpd due to the Strait of Hormuz closure. The April figure in its latest Monthly Oil Market Report included the UAE, which exited the cartel on 1 May.

OPEC cut its second-quarter oil demand forecast by a further 500,000 bpd and lowered its 2026 global oil demand forecast amid the impact of the Iran conflict with Israel and the US.

OPEC said world oil demand would rise by 1.17 mbpd this year, down from the 1.38 mbpd expected previously.

However, the producer group predicted a rebound and raised its 2027 demand growth forecast by 200,000 bpd to 1.54 mbpd.

Volatile prices

The IEA’s report said benchmark oil prices had posted “wild swings” in response to mixed signals on whether the US and Iran would soon reach a deal to end the conflict. It said North Sea Dated had plunged from a high of $144/bbl to below $100/bbl before rebounding.

“With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1 billion barrels with more than 14 mbpd of oil now shut in, an unprecedented supply shock,” it said, referring to supply losses relative to pre-conflict levels.

“The current supply-demand gap is significantly smaller, however, as the market was already in surplus heading into the crisis while producers and consumers alike are responding to market signals.”

Supply shifts

The IEA noted that Saudi Arabia and the UAE had successfully redirected some exports to terminals loading away from the Strait.

“At the same time, stocks from commercial and government strategic storage sites in consuming countries are flowing into markets to offset part of the losses,” it said.

The IEA also said producers outside the Middle East raised output and exports to record levels in response to the crisis, and that 2026 supply growth expectations from the Americas had been revised up by more than 600 kbpd since the start of the year, to 1.5 mbpd on average. Atlantic Basin crude oil exports have increased by 3.5 mbpd since February, with notable gains from the US, Brazil, Canada, Kazakhstan and Venezuela. Russia’s crude oil exports have also risen, as repeated attacks on its refineries cut domestic use.

Prices and demand

OPEC said crude oil futures prices averaged higher, month-on-month, in April but remained volatile throughout, “reflecting continued uncertainty surrounding geopolitical developments, near-term supply conditions and trade flows”.

Its Monthly Oil Market Report added: “Geopolitical developments remained the dominant driver of market sentiment.”

The IEA’s monthly report said end users were reducing consumption and global oil demand was now expected to contract by 2.4 mbpd year-on-year in 2Q26, declining by 420 kbpd for the year as a whole, 1.3 mbpd weaker than the IEA’s pre-conflict forecast.

“Higher prices, a deteriorating economic environment and demand-saving measures will further weigh on global oil consumption,” said its report.

It said refiners have reduced runs and sharply scaled back crude imports, with Chinese seaborne crude imports falling by a huge 3.6 mbpd from February to April. Major import reductions were also seen in Japan, Korea, and India.

Slow supply recovery

However, the IEA said demand may swing back to growth towards the end of the year if a deal to end the war is agreed, allowing flows through the Strait to gradually resume from 3Q26. But it said supply would likely recover more slowly.

“As a result, the oil market remains in deficit until the final quarter of the year,” it said. “With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period.”