Depleted inventories leave oil markets exposed to further supply disruptions

This blog post is part of a special series based on the October 2026 Commodity Markets Outlook, a report published by the World Bank Group. This series features concise summaries of commodity-specific sections extracted from the report. Explore the full report here. Front-month Brent crude futures climbed above $115 per barrel (bbl) in late October, then eased to nearly $95/bbl in the first week of November as renewed near-term active conflict in the Middle East appeared less likely. After the Islamic Republic of Iran and the United States failed to reach a follow-on agreement to their June memorandum of understanding, Brent fluctuated between $75/bbl and $100/bbl and then stayed above $100/bbl in September and October. Oil product markets also tightened sharply. The European diesel premium over Brent averaged about $91/bbl in September, a record high, and U.S. retail diesel prices averaged nearly $6.20 per gallon in October. Middle Eastern crude exports have rebounded, yet the declines in global supply and demand remain historically large. By early October, Middle Eastern oil exports were near 2025 levels, supported by ship-to-ship transfers, untracked shipments, and pipelines bypassing the Strait of Hormuz. Refinery damage delayed the recovery in refined-product exports, including diesel. Global output fell about 9 million barrels per day (mb/d) (8.5 percent) year-on-year in 2026Q2 and 7 mb/d in Q3, largely in Saudi Arabia and Iraq. Gains in six major producers—including Brazil, Kazakhstan, and the United States—offset just 18 percent of gross losses. Supply is projected to fall 5.5 mb/d (5.2 percent) in 2026, the steepest annual decline in over four decades apart from 2020. Consumption fell 5.0 mb/d (4.8 percent year-on-year) in 2026Q2 and 3.7 mb/d (3.4 percent) in Q3, mainly in emerging market and developing economies (EMDEs). China contributed about 35 percent of the decline in EMDE oil consumption, partly as electric vehicles displaced oil. Global demand is projected to shrink 2.6 mb/d (2.5 percent) for the year, a decline surpassed only in 1980 and 2020. Lower inventories have left oil markets more exposed to further supply disruptions. As supply losses outpaced the decline in demand, the implied market deficit widened to 2.9 mb/d in 2026Q2 before easing in Q3. Observed global inventories declined at an average rate of about 2.4 mb/d from March to September, dropping from near the top of their 2021–25 range at the year’s start to near the bottom by end-September. Although stocks totaled about 7.8 billion barrels, much of the oil was in transit, needed for operations, or otherwise not readily available. OECD government stocks reached their lowest level in over three decades; U.S. strategic reserves remained at their lowest since 1982. In early October, International Energy Agency members agreed to accelerate the release of 100 million barrels of emergency stocks through January 2027, initially prioritizing diesel. Oil prices are projected to ease gradually as supply rebounds and the market shifts into surplus. Brent is forecast to average nearly $100/bbl in 2026Q4 and $91/bbl for 2026 as a whole, before falling to $79/bbl in 2027 and $70/bbl in 2028. This outlook assumes a sustained recovery in Middle Eastern crude shipments, a return of Gulf refinery throughput to pre-conflict levels by 2027Q2, and a rebound in Russian crude output. Consumption is expected to recover in 2027 but remain about 0.5 mb/d below 2025 levels. Global supply would return to about 106 mb/d in 2027, near its 2025 level. The market would enter surplus conditions in 2027Q2, enabling inventories to recover about 80 percent of their 2026 drawdown by end-2027. Near-term risks to oil prices remain tilted to the upside. Renewed hostilities could reverse the recent recovery in shipments through the Strait of Hormuz, while attacks on Gulf pipelines, Red Sea shipping, or Russian oil infrastructure could exacerbate shortages of crude oil and refined products. With inventories already depleted, even modest additional supply losses could trigger sharp price increases. In an adverse scenario in which Gulf production falls by about 5 mb/d in the first half of 2027 and Russian exports remain constrained, Brent would average $105/bbl in 2027—about 33 percent above the baseline forecast. A more restrictive OPEC+ production policy poses an additional upside risk. Downside risks become more prominent later in the forecast horizon: a durable resolution of the conflict, stronger-than-expected growth in supply from countries outside of OPEC+, and faster adoption of electric vehicles could put downward pressure on prices.