Why Are Oil Prices Going Down? Surplus Since the Iran War

Prices are dropping because more oil is reaching the market than the world is using. The International Energy Agency’s monthly report on November 13 put global oil supply at 105.4 million barrels a day in October, up 2.3 million barrels a day in a single month. It said supply will exceed demand by about 1.7 million barrels a day in the fourth quarter and that the surplus will be larger in 2027.

Stockpiles are the clearest sign. Observed global oil stocks rose by 52 million barrels in October, the first monthly increase since June. In the United States, the latest weekly figures from the Energy Information Administration showed commercial crude inventories up 4.7 million barrels to 414.4 million, ending five weeks of declines.

Demand has also weakened. High fuel prices have cut consumption, and the IEA expects world oil demand to fall by 2.7 million barrels a day in 2026, to 102.3 million barrels a day.

Brent has fallen by nearly 18 percent in two weeks. It traded above $117 a barrel on October 30, when attacks on tankers in the Gulf were at their wartime peak, and slipped briefly below $90 on November 10, its lowest level since August. By November 13 it had recovered to about $96 and was heading for a second straight weekly loss.

That is still well above the pre-war price. Brent closed at about $71 to $72 a barrel on February 27, the day before the war began. It touched more than $126 on April 30, the highest level of the war so far. Oil today costs roughly a third more than before the war, but about a quarter cheaper than at its spring peak.

Prices are falling because Gulf oil is moving again even though the strait has not reopened to normal shipping. Gulf exports, excluding Oman, reached 18.4 million barrels a day in October, about 26 percent below their pre-war level, according to the IEA. Crude exports alone were about 15 million barrels a day, roughly 82 percent of the pre-war figure.

Some of that oil avoids the strait entirely. Saudi Arabia’s East-West Pipeline can carry up to 7 million barrels a day from the Gulf coast to Yanbu on the Red Sea. The rest still crosses Hormuz on the route and terms that Iran’s armed forces set, with tankers accepting the risk.

Iran’s own exports are a different story. The US Navy has blockaded Iranian ports since July 14, the second blockade of the war, as explained in what the US blockade of Iran is and how it works. Iranian barrels have been largely missing from the market for months, so their absence no longer moves the price much.

Yes. Signals from Washington since early November have lowered the risk premium that traders add for a possible new round of strikes. President Donald Trump said on November 9, after meeting Qatar’s prime minister, that “Iran militarily is effectively over” and called renewed military action “quite unlikely”, while keeping the naval blockade in place, as we reported in what Trump said after the Qatar talks.

On November 12 he wrote, “We don’t need a deal with Iran.” For the oil market, that reads as a long stalemate rather than a new war: the blockade stays, Iranian oil stays off the market, and the Gulf’s other exporters keep rebuilding their flows.

Diesel is still expensive because refined fuels have recovered far more slowly than crude. The IEA described diesel supply as in severe tightness on November 13, with prices at record levels, especially in the United States. Gulf exports of refined products and liquefied petroleum gas are still running at about half their pre-war level, and attacks on Russian energy sites are limiting Russia’s diesel exports.

The agency said it is speeding up the release of emergency diesel stocks over the coming months. Our earlier look at the G7 oil release and the diesel squeeze explains how those emergency barrels reach the market. So cheaper crude does not mean equally cheaper fuel at the pump.

Most official forecasts expect prices to keep easing into 2027, but more slowly than the November slide suggests. The US Energy Information Administration’s November outlook, released on November 10, forecasts Brent at $104 a barrel for November and $99 for December, an average of $97 for 2026 and $86 for 2027. Those numbers were fixed on November 5, before the latest drop, so they may already look high.

Producer policy is the next test. On November 1 the core OPEC+ producers kept their December output targets at September’s levels, and Saudi Arabia, Kuwait and Iraq are still pumping below their quotas because of the Hormuz restrictions. The wider OPEC+ group meets on November 29 to set its plans for 2027.

The main risk is the sea lanes. Attacks on ships roughly doubled in October, with at least 30 vessels hit by October 27 against 15 confirmed incidents in September, and Brent jumped 4 percent to $104.28 on October 8 when Iran stepped up those attacks. Tankers were still being struck on November 12, and in early November Iran’s army and Revolutionary Guards claimed that mines had hit 12 tankers in six days, none of them named or confirmed, as tracked in how many tankers have hit mines in Hormuz.

A new US strike would have the same effect. Trump said on November 12 that he would have “no hesitation” in striking Iran again if it threatened US allies or shipping in the strait. The IEA itself warned that attacks on shipping are the main threat to the recovery its forecast depends on.