Cyprus fuel costs face fresh pressure as IEA warns shortages will stretch into 2027

Cyprus could face continued pressure on fuel prices, transport costs and business expenses well into 2027, as the International Energy Agency (IEA) warned that global oil markets would remain tight despite falling demand and a recovery in production. In its latest Oil Market Report, published this week, the agency warned that oil supply would remain insufficient to meet demand until the end of 2026, while shortages of diesel and other middle distillates could persist for a substantial part of next year. The findings raise fresh concerns for Cyprus, where dependence on imported petroleum products leaves households and businesses exposed to international energy prices, particularly in transport, shipping and electricity generation. According to the IEA, global recorded oil inventories were 509 million barrels below pre-war levels at the end of September, with onshore stocks falling to their lowest levels since at least 2016. The decline came despite a recovery in oil shipments from the Gulf, as 103m additional barrels held at sea were more than offset by a 113m-barrel reduction in onshore inventories. Consequently, global recorded stocks fell by approximately 10m barrels during September, further reducing the reserves available to absorb unexpected supply disruptions. The agency warned that continued hostilities in the Middle East could bring further instability to energy markets before an eventual supply surplus emerges in 2027. For Cyprus, prolonged market tightness could translate into higher import costs and continued uncertainty over fuel prices, although the eventual impact on consumers will also depend on international product prices, shipping costs and domestic pricing conditions. Particular concern surrounds the global diesel market, which has faced severe shortages following disruptions to exports from the Middle East and Russia. The IEA reported that global diesel exports were 700,000 barrels per day lower in September than a year earlier, as a combined reduction of 1.3m barrels per day from Russia and the Middle East was only partly compensated by additional supplies elsewhere. At the same time, exports of refined petroleum products from the Middle East remained below half their pre-war levels, despite some improvement in crude oil shipments. These disruptions have placed additional pressure on international fuel markets, particularly ahead of the winter period, when demand for heating oil and other petroleum products typically increases. Indeed, wholesale diesel prices exceeded $200 per barrel in Singapore during September and reached approximately $220 per barrel in Europe and the United States, according to the agency. Although prices have since retreated from those peaks, diesel benchmarks remain substantially above their pre-crisis levels. The IEA warned that high diesel prices were already affecting the wider economy through increased costs for goods, reduced household purchasing power and additional inflationary pressure. Such developments are particularly relevant to Cyprus because higher diesel and transport costs can affect the distribution of imported goods, agricultural production, construction activity and commercial operations. Meanwhile, the agency expects the recovery in global refinery production to improve fuel availability towards the end of 2026. Global refinery throughput is forecast to rise from 81.3m barrels per day in October to 84.6m barrels per day by December, providing some relief to strained petroleum product markets. However, this recovery is not expected to eliminate the shortages accumulated during the year. The IEA forecasts that the diesel market will return to a surplus during the first quarter of 2027, allowing inventories to recover broadly in line with normal seasonal patterns. Nevertheless, the anticipated increase will not be sufficient to compensate for the substantial reduction in stocks recorded throughout 2026. As a result, diesel market conditions are expected to remain tight well into 2027, with a more meaningful replenishment of depleted inventories unlikely before the second half of the year. The outlook will depend heavily on the restoration of refined petroleum product exports from the Middle East, where infrastructure damage, security concerns and continuing regional instability have delayed a full recovery. Furthermore, the IEA expects global oil demand to decline by 2.6m barrels per day in 2026, reflecting elevated fuel prices and deteriorating economic conditions in several markets. Demand is forecast to recover by approximately 2m barrels per day in 2027, although overall consumption would still remain below its 2025 level. On the supply side, global oil production increased by 2.5 million barrels per day in September, reaching 102.3m barrels per day, supported by higher output from Gulf producers. However, renewed attacks in the region have raised doubts about the durability of that recovery. The agency expects global oil supply to average 100.7m barrels per day in 2026, before increasing by 7.7m barrels per day next year, provided that production and exports recover as anticipated. Despite these projections, the IEA stressed that weakening demand alone would not be enough to restore balance immediately, particularly in the market for refined fuels.