Oil market outlook: fragile recovery leaves diesel supplies under pressure
The global oil market is expected to remain in deficit through the end of 2026, despite weakening global demand, while middle distillate supply constraints are likely to persist well beyond 2027, according to the International Energy Agency (IEA).
In its October 2026 Oil Market Report, the agency warned that the recovery in Middle Eastern oil supplies remains vulnerable to renewed disruptions.
Oil shipments from the region improved in September, with crude exports appearing to approach prewar levels. However, October attacks on regional energy infrastructure and oil tankers operating in the Gulf have once again threatened supply stability.
Crude oil delivery costs rise as refining margins narrow
The IEA also reported rising crude oil delivery costs, putting additional pressure on refinery margins.
Brent crude futures climbed 13% from the beginning of September to $107 a barrel. Physical crude benchmarks recorded even sharper increases, with North Sea Dated Brent surging 43% to $134 a barrel.
Other North Sea crude grades traded as high as $160 a barrel, highlighting the growing divergence between futures prices and the cost of securing physical supplies.
Oil product markets remain tight despite recovering exports
Although Middle Eastern crude exports rebounded significantly in September 2026, refined petroleum product markets remain severely constrained.
Crude shipments from Gulf producers, particularly Saudi Arabia, increased during the month, recovering to more than 75% of prewar levels. The rebound was supported by higher production and withdrawals from existing inventories.
Ship-to-ship transfers in the Gulf of Oman also helped increase overall oil flows, while the rapid restoration of Saudi Arabia’s East-West pipeline boosted exports through routes that bypass the Strait of Hormuz.
Together, these developments provided some relief to global crude markets, although they have yet to resolve broader supply shortages.
Oil market outlook: IEA maintains supply forecasts despite September rebound
The sharp recovery in September prompted the IEA to revise its global oil supply estimates upward for the third quarter of 2026 compared with its previous report.
However, following Houthi attacks in October, the agency left its supply projections unchanged for the remainder of the year.
Global oil supply is therefore expected to average 101.4 million barrels per day (mb/d) during the second half of 2026.
The renewed attacks in the Gulf underscore the fragility of the recovery. According to the IEA’s latest oil market outlook, global oil supply is projected to decline by an average of 5.8 mb/d in 2026, before rebounding by 7.7 mb/d in 2027.
The forecast is broadly consistent with the agency’s September assessment, which projected a decline of 5.7 mb/d, equivalent to approximately 6% of global supply.
In August, the anticipated contraction had been smaller, at around 4%, indicating a progressively weaker supply outlook as geopolitical disruptions intensified.
Global refinery runs approach seasonal lows
Global refinery crude runs are expected to reach a seasonal low of 81.3 mb/d in October, reflecting continued operational and supply constraints across the refining industry.
For 2026 as a whole, global refinery throughput is projected to fall by 2.3 mb/d to 81.7 mb/d, before recovering by 2.8 mb/d in 2027.
Diesel markets remain particularly strained, with prolonged supply disruptions forcing inventory withdrawals at a time of year when stocks would typically be replenished.
Global diesel exports in September were approximately 700,000 barrels per day lower, as a combined 1.3 mb/d reduction in shipments from Russia and the Middle East was only partially offset by increased supplies from other regions.
The imbalance illustrates why a recovery in crude oil exports does not necessarily translate into immediate relief for diesel markets, where refining capacity, product availability and distribution constraints remain critical.
Onshore oil inventories fall to their lowest levels since at least 2016
Global oil inventories declined only slightly in September, supported by the sharp increase in Gulf exports, which more than offset a further 113 million-barrel drawdown in onshore stocks.
Nevertheless, by the end of September, global oil inventories remained substantially below prewar levels, while onshore stocks had fallen to their lowest levels since at least 2016.
The continued depletion of these reserves is reducing the market’s ability to absorb additional supply disruptions.
Without a rapid resolution to the ongoing conflicts in the Middle East, global oil markets could face further turbulence in the coming months, particularly as available inventory buffers continue to shrink.
On October 26, Brent crude traded at $116 a barrel, while West Texas Intermediate (WTI), the US benchmark, hovered near $101 a barrel.
Despite improved crude flows, supply risks remain elevated and shipping costs continue to weigh on the market.
Investors are also preparing for a series of potentially market-moving political and economic events, including Israel’s October 27 election, a Federal Reserve policy decision expected later this week, and the US midterm elections on November 3.
Together, these developments could add further volatility to an already fragile global oil market.