Middle East war deepens 2026 oil deficit outlook, but 2027 glut still looms

Looking ahead, analysts see multiple supply-side drivers for a market surplus in 2027, including increased flows out of the Gulf after the Strait of Hormuz is reopened, OPEC+'s decision to unwind its production cuts and strong output from the U.S. and Latin America. Meanwhile, demand from China is anticipated to be lower, with HSBC trimming its forecast by **0.78 million bpd** this year and **0.55 million bpd** in 2027 versus pre-war estimates, due to electrification and substitution effects. "By the end of 1Q 2027, global oil stocks could be back to their February 2026 peaks, entirely erasing the drawdowns seen from March to late summer 2026. Thereafter, they would continue to climb to potentially new record highs, exceeding 2020 pandemic levels," said Kim Fustier, head of European oil & gas research at HSBC. "This market has flipped from fear of shortage to glut risk fast. U.S. energy dominance shines through — our exports have been a lifeline," said Phil Flynn, senior analyst with Price Futures Group. The Iran war, which began with U.S. and Israeli strikes against Iran on February 28, triggered Iranian attacks on Gulf states that host U.S. bases and caused major disruptions to global energy supplies due to the effective closure of the Strait of Hormuz, a conduit for about a fifth of pre-war oil supplies. Oil markets received some respite last month as a peace agreement between the U.S. and Iran facilitated the opening of the Strait, but a recent escalation in hostilities has again spiked prices and squeezed supplies. Brent crude futures LCOc1 have climbed around **28%** so far in July. Prices posted their sharpest monthly rise in March at **63%**, according to LSEG data dating back to June 1988. The conflict in the Middle East has deepened forecasts of a global oil deficit in 2026, according to a Reuters poll of analysts, but recovering Gulf flows, robust U.S. production and weaker demand from China are expected to tip the market into an oversupply in 2027. The Iran war has choked crude production and exports out of the Gulf, prompting analysts to cut their near-term supply forecasts and reverse course on previous expectations of a glut this year. Eight analysts polled by Reuters see an average deficit of **1.5 million barrels per day** in 2026, roughly double the **750,000 bpd** deficit forecast in a similar poll in April. In contrast, prior to the Iran war, analysts expected a **1.63 million bpd surplus** for 2026. However, the market is expected to bounce back to a surplus of **1.9 million bpd** in 2027, the poll showed. Global oil supply rose by **4.1 million bpd** in June, according to the International Energy Agency, but was still **9.4 million bpd** below pre-war levels. The agency expects supply to increase by **7.5 million bpd** next year, contingent on improved Hormuz transits. Analysts polled by Reuters also cautioned that any expectations of a future market surplus will hinge on how quickly flows through the Strait of Hormuz normalize. "We saw a 'mini glut' in supply as a lot of trapped vessels exited the Strait after the interim deal. But will ships enter the Strait at the same pace as before?" said DBS Bank analyst Suvro Sarkar.

Middle East war deepens 2026 oil deficit outlook, but 2027 glut still looms

Supply disruptions and price moves

Analysts see a larger 2026 oil deficit

Market balance depends on Hormuz flows

2027 surplus risks remain

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