IEA Oil Market Update - From famine to feast, but its not strait forward

Research evidence excerpt

IEA Oil Market Update - From famine to feast, but its not strait forward

Neil Beveridge, Ph.D. +852 2123 2648 neil.beveridge@bernsteinsg.com 10 July 2026

INVESTMENT IMPLICATIONS

The key insight from this month's IEA report is that the oil market is transitioning from deficit to oversupply in 2027. This is very

much a continuation of the message from last month. A combination of permanent demand destruction caused by the Gulf

conflict, recovering non-OPEC supply, and the UAE's exit from OPEC creates the potential for a glut next year. Consequently,

oil prices are expected to decline in 2027, with support forming in the US$70/bbl range, underpinned by marginal production

costs and the need for inventory restocking after historic drawdowns. We suspect the glut may not be nearly as big as feared,

however. Firstly, IEA estimates presuppose that oil flows through the Straits of Hormuz returns to normalized level. This remains

highly uncertain with the MOU between the US and Iran still to be fully consummated into a deal. Secondly the IEA may be

underestimating the extent of re-stocking which will take place next year. Much of the inventory drawdown which has occurred

has occured in China which is less visible to the market. While oil prices have declined given the wave of crude which has

entered the market following a reopening of the straits, we expect flows to slow in the near term however which will lead to

higher prices in the short term. We remain constuctive on oil equities at these levels.

DETAILS

• Global oil demand is now expected to contract by 1.0MMbls/d for the year. 2026 demand has been revised up

100kbd vs. the June OMR to 103.5MMbls/d (-1.0MMbls/d y-o-y), with OECD revised up to 45.5MMbls/d (+100kbd y-o-y)

and non-OECD to 58.0MMbls/d (200kbd y-o-y).