Gulf crude exports rebound, while onshore inventories and diesel supplies remain tight
Evercore ISI has lowered its forecast for global oil inventory draws in the fourth quarter of 2026 from 3.5 million barrels per day to 1.1 million barrels per day, but oil accumulating at sea, record freight rates and refinery damage mean the benefits of the supply-demand recovery are unevenly distributed.
Original source：Evercore ISIFirst published on Unhidea：Original source date：
Key takeaway
The recovery in Gulf crude exports is narrowing the global supply gap, but the shift of inventories offshore, diesel shortages and high freight rates mean the oil market remains some distance from normal.
How quickly is Gulf crude supply recovering?
In September, Gulf crude exports rose by 4.4 million barrels per day from the previous month to 13.9 million barrels per day, recovering to about 75% of prewar levels; flows through the Strait of Hormuz increased by 3.7 million barrels per day.
This prompted Evercore ISI to lower its forecast for global oil inventory draws in the fourth quarter of 2026 from about 3.5 million barrels per day to 1.1 million barrels per day, equivalent to a reduction of about 100 million barrels over the quarter. It also expects the market could shift into surplus in the first quarter of 2027.
The recovery is uneven: Kuwait’s supply fell by 550 thousand barrels per day in September as tankers came under repeated attack; intensified attacks in early October also caused a marked decline in Gulf crude flows. The institution expects further recovery of disrupted crude supplies to continue into 2027.
Why are onshore inventories still tight as the overall draw narrows?
In September, global observable oil inventories fell by only 10 million barrels, but their composition changed markedly: higher Gulf exports and longer voyages increased oil on the water by 103 million barrels, roughly offsetting a 113 million-barrel decline in onshore inventories.
Onshore inventories have fallen to their lowest level since at least 2016. China’s onshore crude inventories fell by 59 million barrels in September; OECD government reserves have fallen by 225 million barrels since February, reaching their lowest level since 1989.
The institution expects a supply surplus of about 2.1 million barrels per day for the full year 2027, or about 770 million barrels in total, but this oil will also be needed to replenish commercial and strategic inventories. The pace of restocking depends on repairs to regional facilities, the restoration of shipping and the scale of strategic reserve replenishment.
Why is diesel still in short supply after crude returns?
Refining and refined-product exports are recovering more slowly than crude. Gulf refined-product exports were 1.9 million barrels per day in September, below the prewar level of 4.7 million barrels per day; global diesel exports also fell by about 1 million barrels per day year on year.
Damage to Russian refineries has intensified the pressure. The institution expects Russian crude processing to be about 4 million barrels per day in the fourth quarter of 2026, 1.1 million barrels per day below a year earlier, and to remain at 4 million to 4.5 million barrels per day over the next 15 months.
Releases from European strategic reserves and potential additional Russian exports could temporarily ease supply, but even if fully realized, they would fill less than half of the global diesel shortfall of about 1 million barrels per day by December. The institution expects US distillate inventories to remain tight through the end of 2027, while gasoline inventories could return to normal in mid-2027.
How are high freight rates changing crude economics and refining margins?
Very large crude carrier freight rates from the Middle East Gulf to Asia and from the US Gulf Coast to China have both risen above 30 dollars per barrel, having been below 10 dollars earlier this year. Congestion in shipping lanes, ship-to-ship transfers and attacks have lengthened voyages and reduced fleet efficiency.
To offset freight costs and shipping risks, exporters in constrained regions must widen discounts: Basrah crude is about 35 to 40 dollars per barrel below North Sea Dated Brent, whereas the two were close to parity in February; landed crude costs remain high for importing refineries in Europe and Asia.
Freight and feedstock costs have widened regional differences in margins. Refineries in the central US have access to discounted North American crude and earn higher margins than those elsewhere in the US; Northwest European refining margins turned negative in late September and early October. Evercore ISI maintains the refining margin forecasts it raised last month and sees US diesel export restrictions as a temporary downside risk to local refining margins.
What does the supply-demand recovery mean for oil prices?
Evercore ISI maintains its North Sea Dated Brent forecasts of 105 dollars per barrel in the fourth quarter of 2026 and an average of 80 dollars per barrel for the full year 2027. The former reflects a persistent risk premium from attacks on shipping and disruptions to alternative routes; the latter is based on the expectation that constrained supply will return and the market will move into surplus.
The demand recovery also has limits: the institution expects global oil demand to fall by about 2.6 million barrels per day year on year in 2026 and rebound by about 2.5 million barrels per day in 2027, essentially only offsetting the previous year’s loss. If transport disruptions persist longer, the decline in demand could deepen and part of the rebound could be delayed until 2028.
High refined-product prices have already begun to change consumption behavior: the institution has observed diesel costs shifting some freight from road to rail and causing some marginal trucking capacity to exit.
