In the wake of the Iran war, the U.S. Energy Information Administration (EIA) tightened its oil glut projection for 2026 in its latest short term energy outlook (STEO), which was released earlier this month.

According to its March STEO, the EIA sees world petroleum and other liquid fuels production outweighing consumption by 1.87 million barrels per day in 2026. In its previous STEO, which was released in February, the EIA projected that world petroleum and other liquid fuels production would outweigh consumption by 3.05 million barrels per day this year.

In its latest STEO, the EIA forecasts that the glut will come in at 1.20 million barrels per day in the first quarter of 2026, 0.72 million barrels per day in the second quarter, 2.22 million barrels per day in the third quarter, and 3.30 million barrels per day in the fourth quarter. The EIA’s February STEO saw the glut averaging 3.32 million barrels per day in the first quarter of 2026, 3.03 million barrels per day in the second quarter, 2.68 million barrels per day in the third quarter, and 3.18 million barrels per day in the fourth quarter.

The EIA increased its 2027 glut projection in its latest STEO to 3.00 million barrels per day. In its previous STEO, the EIA projected that the glut would come in at 2.68 million barrels per day next year.

The EIA’s March STEO sees the glut averaging 3.70 million barrels per day in the first quarter of 2027, 2.64 million barrels per day in the second quarter, 2.44 million barrels per day in the third quarter, and 3.23 million barrels per day in the fourth quarter. In its February STEO, the EIA saw the glut averaging 3.56 million barrels per day in the first quarter of 2027, 2.36 million barrels per day in the second quarter, 2.12 million barrels per day in the third quarter, and 2.69 million barrels per day in the fourth quarter.

In its latest STEO, the EIA highlighted that world petroleum and other liquid fuels production outweighed consumption by 2.36 million barrels per day in 2025. The EIA’s February STEO showed that the glut averaged 2.70 million barrels per day last year.

The EIA highlighted the “onset of military action in the Middle East that began on February 28” in its March STEO. It pointed out that, as of March 9, when it finalized its forecast, “physical damage to oil infrastructure was limited, but the Strait of Hormuz was effectively closed to most shipping traffic”.

“High uncertainty about the conflict’s effect on oil supplies has added a large risk premium to oil prices as market participants assess actual disruptions to oil flows and weigh the potential for those disruptions to persist,” the EIA said in its March STEO.

“The primary risk that would cause oil prices to continue rising is an extended closure of the Strait of Hormuz, which is a major world oil transit chokepoint through which nearly 20 percent of global oil supply flows,” it added.

“Although the Strait of Hormuz is not physically blocked, the threat of attack by Iran and the cancellation of insurance coverage have led most tankers to avoid transiting the Strait. As a result, some oil production in the region has been shut in,” it continued.

The EIA went on to warn in its STEO that, “if this reduction in vessel volume persists, oil storage behind the chokepoint will quickly fill, causing oil producers to shut in even more production, lending further support to oil prices”.

The EIA highlighted in its STEO that, in its analysis, it makes the assumption that shut in oil production will peak in early April and that shut-in production “will gradually ease as transit through the Strait resumes”.

“Once oil flows are reestablished through the Strait of Hormuz, we expect global oil production will continue to outpace consumption over our forecast period,” the EIA warned.

The EIA also highlighted in its STEO that it does not expect OPEC+ will “significantly increase production next year given estimates of significant inventory builds over the forecast period”.

It added, however, that its assumption around OPEC+ supply “is contingent on the duration and extent of disruption to oil flows around the Strait of Hormuz”.

In a commodity note sent to Rigzone on Friday, Ole Hansen, Saxo Bank’s Head of Commodity Strategy, stated that “the nature of the energy shock is evolving”.

“What began as a supply disruption risk centered on the Strait of Hormuz has developed into a more complex and persistent challenge involving damaged infrastructure, disrupted trade flows and with that rising macroeconomic headwinds,” he added.

Hansen highlighted in the note that crude oil “traded higher on the week as the conflict persisted and the Strait of Hormuz remained effectively closed, with strikes increasingly targeting energy infrastructure”.

“Price action remains asymmetric, pulled between political signals aimed at containing prices and a worsening on the ground situation that now includes direct attacks on critical production assets,” he warned.

To contact the author, email andreas.exarheas@rigzone.com