Middle East producers are pushing global oil supplies toward a surplus in the fourth quarter this year. This has happened despite continued attacks against shipping in the region, the International Energy Agency (IEA) said on Friday.

“The oil market is showing tentative signs of rebalancing, with global oil supplies surpassing demand for the first time since the outbreak of the war in Iran,” the IEA said in its monthly report. “Observed oil inventories rose by 52 million barrels, or 1.7 million per day, in October as Gulf exports recovered much faster than global oil demand.”

Global oil supplies surged by 2.3 million barrels per day to 105.4 million barrels per day (bpd) in October, the Paris-based agency said. That lifted output by an “extraordinary” 5.3 million bpd since August.

The surge prompted the IEA to sharply raise its supply outlook for the rest of the year. It had previously forecast a fourth-quarter deficit. 

“Our November supply and demand balances suggest that the global oil market will return to a surplus in 4Q26, with a more substantial build in 2027,” the IEA said. “As always, downside risks to the forecast persist, as attacks on shipping undermine maritime security, which is pivotal to a sustained recovery.”

Crude prices slipped on Friday after the agency projected a surplus, with a stronger dollar adding pressure. December WTI settled at $88.56 a barrel, down 18 cents from Thursday. For the week, WTI lost $2.27, or 2.50%, from the previous Friday’s $90.83 settlement, its second straight weekly decline.

Gulf Exports Recover Despite Attacks

Gulf exports, excluding Oman, reached 18.4 million bpd in October, or 26% below pre-war levels, the IEA said. Saudi Arabia raised crude output by about 1 million bpd to 10 million bpd. Iraq pumped 4.6 million bpd, its highest level since 2019, and Kuwait’s output rose to 2.03 million bpd from 1.58 million bpd, according to the agency. 

“The glut I warned about is showing up on schedule,” Phil Flynn, senior market analyst at the Price Futures Group, wrote in his Energy Report newsletter on Friday. “The back end of the curve was right, and now the front end is catching up.” 

He added that the recovery in Gulf exports “takes the market from shortage to surplus almost overnight.” 

Still, Middle East flare-ups pose a supply risk for crude. Commercial shipping is coming under continued attack and the region’s energy infrastructure being disrupted. 

There were 36 confirmed attacks on commercial ships in the Persian Gulf, the Strait of Hormuz and the Gulf of Oman in October, according to consultant Verisk Maplecroft. That was the highest total since the war began in February. 

Global Oil Demand

Alongside the increase in supplies, the IEA has forecast a decline in global oil demand.

It cut its 2026 global oil demand forecast to 102.3 million bpd, down 90,000 bpd from last month’s forecast. The year-on-year decline is set to ease to 2.7 million bpd in the fourth quarter.

That is from from an average 4.4 million bpd over the second and third quarters.

LPG/ethane and naphtha will account for around 80% of the increase next year as supply chains normalize, the agency said. Transport fuels will see very modest gains, as high prices accelerate electrification and fuel efficiencies across the global car fleet.

Products Remain A Concern

The severe tightness in product supply, especially for diesel, remains the overriding concern, according to the IEA.

“Persistent attacks on Russian energy infrastructure continue to choke off the country’s diesel supplies to international markets,” it said. 

Renewed Ukrainian drone attacks on Russian oil refineries since late October have reduced Russia’s oil refining capacity by about 30%, Reuters reported, citing two industry sources.

Ukraine’s General Staff said in a Telegram statement that its forces attacked Lukoil PJSC’s Volgograd refinery. The strike caused a fire, Bloomberg reported on Friday. The plant’s four primary processing units, a hydrotreatment unit, six storage tanks and a loading rack were damaged, according to the statement. 

“The accelerated release of IEA emergency diesel stocks over the coming months will provide a critical bridge across the supply gap until the global refinery system and product output recover,” the agency said. 

Refinery Runs Forecast To Recover 

Global refinery runs fell by 1.3 million bpd month on month to a seasonal low of 81.3 million bpd in October. They are are forecast to rebound to 84.7 million bpd in December, the IEA said.

Global throughputs are projected to rise by 2.5 million bpd to 84.3 million bpd in 2027. That follows an average annual decline of 2.2 million bpd in 2026.

Atlantic Basin refineries, particularly in the United States, are running hard to capture high margins. Improved crude availability in Asia and fresh Chinese product export quotas could support higher refinery throughput rates in the region, the agency said.

Margins weakened almost everywhere in October as record freight costs hit Asian refiners. U.S. refiners benefited from cheaper crude, but lower gasoline prices weighed on profits.