Oil Market Update : Tight Inventories Support Prices Despite Weakening Demand Outlook June By Motilal Oswal Financial Services Ltd
* All three agencies now see a weaker 2026 demand outlookyith the IEA delivering its sharpest downgrade and OPEC finally lowering demand growth expectations
* Supply fell even faster than demand that's why prices stayed high despite weak consumption. IEA sees 2026 supply down 3.9mb/d to 102.4 mb/d, with May output at just 94.5mb/d, 13.6 mb/d below pre-conflict levels.
* Global inventories remain under severe pressure, with accelerated stock draws pushing OECD government inventories to their lowest level since 1990
* The IEA now sees a potential supply surplus in 2027 if the strait reopen, reflecting the projected production rise and a clouded demand outlook
* Restocking demand should absorb some excess barrels, but the IEA views inventory rebuilding as a cushion to oversupply rather than a durable price floor
* Gulf export flows are recovering faster than expected, providing the clearest evidence that supply disruptions are beginning to unwind
* Full normalization isn't immediate as mines and logistics are now the bottleneck, not politics; expect a multi-week-to-multi-month lag between the deal and Hormuz hitting full prewar throughput
* OPEC+ is sitting well below supply target because exports were curbed and storage was full during the closure, not by choice, creating significant upside supply risk once export and shipping constraints ease
* Political risk remains elevated, as past USIran agreements have often proved fragile; despite the interim deal, markets cannot rule out renewed tensions and a reversal of recent normalization
* The market is likely headed for two-way volatility, with tight inventories supporting prices while weakening fundamentals cap upside
* Refined product markets remain significantly tighter than crude, suggesting downstream prices may normalize more slowly than oil benchmarks
* EIA raised its Henry Hub outlook despite softer oil demand,
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