From surplus to shortage: Iran tensions push global oil market into deficit - Report

The global oil market surplus has been severely hit amid the Iran conflict, pushing the market into a deficit in early 2026, according to a report by YES Securities. The report indicated that the oil market has shifted from surplus in 2025 to a materially higher deficit till now in 2026 due to the disruption in supply triggered by the war.

Major output cuts in key oil-producing regions have eroded the surplus that once kept prices stable. Earlier, global oil markets were well oversupplied, with an average surplus of 2.3 million barrels per day in 2025. However, recent disruptions have significantly worsened the situation, with production losses reaching as much as 10 million barrels per day in April 2026.

Supply gap

This shift has turned the surplus into an average deficit of 1.4 million barrels per day during the first four months of the year. Despite the current tightening, the report indicates that the supply gap may not last for the remainder of the year. "We think that the supply loss during March and April will not likely translate into a sustained deficit throughout the year," the report said.

"We expect the conflict to end by this month. Therefore, markets are unlikely to remain in a sustained deficit as disruptions ease through the year," it added.

Meanwhile, oil prices are projected to stay high in the near term, likely settling in the range of USD 80-85 per barrel, supported by a geopolitical risk premium of about USD 10-15 per barrel. These elevated prices could encourage higher output from non-OPEC producers, particularly US shale, helping to ease supply constraints.

The report further noted that "even if the conflict ends by April, benchmark prices are likely to stabilise in the USD 80-85/bbl range rather than retrace sharply, as partial normalisation in transit flows is expected but not a full return to pre-conflict conditions until late 2026. As a result, Oil prices are expected to embed a geopolitical risk premium of roughly USD 10-15/bbl"

At the same time, sustained high prices may curb demand growth, especially in cost-sensitive markets, potentially keeping the global oil market relatively balanced by the end of 2026.