Recovery of World Oil Supply Threatened by Geopolitical Risks

JAKARTA - The International Energy Agency (IEA) reported that global oil supplies recorded the largest monthly increase in recent months in June, driven by the recovery of shipments through the Strait of Hormuz, which increased production in the Gulf countries.

However, oil production is still far below pre-conflict levels due to ongoing security disruptions, the IEA wrote.

In its monthly Oil Market Report released on Friday, July 10, the IEA also revised upward its projections for global oil supply and demand as market conditions improved after the achievement of a framework agreement between the United States and Iran.

However, the agency reminded that geopolitical risks in the Gulf region still overshadow the prospects for the global energy market.

Reporting from Anadolu, the IEA noted that global oil production is still about 9.4 million barrels per day (bph) lower than the pre-war level between the United States, Israel, and Iran, despite a significant recovery throughout June.

Oil supplies from the Gulf states increased by about 3.5 million barrels per day in June after production began to recover following the framework of an agreement between the United States and Iran.

However, disruptions to shipping through the Strait of Hormuz still occur periodically due to security concerns and still rely on the escort of the US Navy.

This situation has left Gulf oil production still around 11.4 million barrels per day below pre-conflict levels.

Production by the OPEC+ group, which consists of the Organization of the Petroleum Exporting Countries (OPEC) and its partner countries, increased by about 2.45 million barrels per day to 38.39 million barrels per day in June.

Saudi Arabia contributed about 900 thousand barrels per day to the increase, while Kuwait added about 630 thousand barrels per day.

Meanwhile, non-OPEC+ countries' production increased by around 1.63 million barrels per day to 60.37 million barrels per day. The United Arab Emirates was the largest contributor with an additional 940 thousand barrels per day, or more than half of the group's production increase.

The IEA estimates global oil supplies will reach an average of 102.6 million barrels per day this year if shipping volumes through the Strait of Hormuz continue to recover.

The projection, while still showing a decline of around 3.7 million barrels per day compared to the previous year, has been revised up by 210 thousand barrels per day compared to last month's estimate.

However, the IEA warned that significant risks still remain because negotiations on the management of the Strait of Hormuz are still ongoing, while attacks in the region have not completely stopped.

The agency projects global oil production will recover by about 7.5 million barrels per day to reach 110.1 million barrels per day by 2027.

Global oil consumption projections

On the demand side, the IEA revised up its global oil consumption forecast for 2026 by 70,000 barrels per day compared to the previous estimate, driven by stronger-than-expected oil deliveries during the second quarter.

Based on the latest projections, global oil demand is expected to fall by around 1 million barrels per day on an annual basis to 103.46 million barrels per day in 2026. The decline will be the first annual contraction since 2020 when the COVID-19 pandemic shook the world energy market.

According to the report, global oil demand in May fell by about 5.3 million barrels per day compared to the same period last year to 97.9 million barrels per day, the lowest level this year.

Demand has started to recover after the agreement between the United States and Iran in mid-June helped restore oil exports through the Strait of Hormuz as well as pushing back demand that had been held up in the Asian region.

The IEA added that lower oil prices and improved global economic prospects also supported increased energy consumption.

For 2027, the IEA maintained its forecast of global oil demand growth of around 2 million barrels per day so that total consumption is expected to reach 105.47 million barrels per day.

However, the agency estimates that the average global oil demand growth over the period 2025-2027 is only around 480 thousand barrels per day each year, much lower than the historical growth trend.