Analysts are back to expecting a huge oil glut next year as they see the U.S.-Iran deal as the end of the worst of the Middle East crisis. The deal is actually just the beginning of long processes of negotiations, a reopening of the Strait of Hormuz, recovery of the more than 13 million barrels per day (bpd) of shut-in oil production in the Middle East, and a world so low on inventories – except in China – that refilling these will support oil prices for months to come. If the deal holds.Every assumption about global oil demand and supply currently rests on the premise that the U.S. and Iran have reached a final and lasting peace deal.They have not. The 14-point Memorandum of Understanding includes a commitment to negotiating and achieving a final deal in a “maximum” of 60 days, extendable with mutual consent, for an unspecified time.Regarding the reopening of the Strait of Hormuz, Iran will “make arrangements using its best efforts” to allow safe passage of commercial vessels through the Strait, without any fees or tolls, according to a BBC summary of the key points in the agreement.So the memorandum is only a deal to continue negotiating a deal, in which the Trump Administration’s only win was managing to bring U.S. average gasoline price back below $4 per gallon, where the price was before the war. Iran, for its part, appears to have won everything else, including sanctions waivers on its oil sales, and a $300-billion reconstruction fund.Oil Glut? The oil and stock markets cheered the announcement of the deal, with Brent Crude prices slumping below $80 per barrel this week, the lowest level since March.It appears that traders and other oil market participants are unwinding their war-risk premium bets in the hopes that free-flowing oil will return quickly, flood the market, and crash oil prices. In its first look at 2027 market balances, the International Energy Agency (IEA) this week said that the oil market will see a significant overhang next year. Demand is expected to rise by 2 million barrels per day from 2026, but supply will surge by 8 million bpd, according to the IEA’s monthly Oil Market Report. Total global demand is seen at 105.3 million bpd, while supply is projected at around 110 million bpd—leaving a significant surplus on the market.“This may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis,” the IEA analysts wrote.Higher volumes with the eventual return of (most of) the supply lost in the Middle East over the past three months would be welcome respite for the severely depleted global stocks, with the U.S. Strategic Petroleum Reserve (SPR) at its lowest level since 1983.Since the war began on February 28, the average pace of stock draws has run at 3.8 million bpd, including 2.4 million bpd for crude and 1.4 million bpd for products. As a result, OECD government inventories have now slumped to their lowest level since December 1990 as the pace of emergency stock releases accelerated in recent weeks, the IEA said.Supply AbsorbersThe expected rise in supply will support the replenishing of these depleted stocks, which in turn will support oil prices and prevent them from crashing too low. Moreover, oil prices below $80 per barrel would slow down the demand destruction the world has seen in recent months when $100 oil was crushing consumption in many regions, including China.Demand next year will also rebound from 2026, according to the IEA, OPEC, and the U.S. Energy Information Administration (EIA).The international agency predicts a 2 million bpd annual increase in demand in 2027, following a contraction of 1.1 million bpd in 2026, due to expected trade flow normalization, lower oil prices, and improving economic outlook.“Forecast growth for 2027 currently ranges from 1.73 million barrels per day according to OPEC to as much as 2.5 million barrels per day according to the EIA, suggesting broad agreement that the current weakness represents deferred rather than permanently lost demand,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said this week.While the case for low oil prices in the near term is compelling, several factors support the view that oil prices would establish a new floor above the $60-70 per barrel range, Hansen wrote in a note this week.“Depleted inventories, slow production restarts, strategic stock rebuilding and stronger seasonal demand should help establish a higher floor for prices than before the conflict,” the strategist said.“The 2027 average price for Brent and WTI are currently trading at USD 75 and USD 71 respectively, both more than 10 dollars above their pre-war level, highlighting market expectations that prices will remain higher for longer,” Saxo Bank’s Hansen said.War Risk RemainsThe geopolitical risk premium has subsided with the announcement of the U.S.-Iran agreement. But it’s unlikely to disappear completely, as no underlying tensions have been resolved by the deal to make a deal.Erik Meyersson, Chief EM Strategist at Sweden’s SEB Bank, noted that “The MoU buys a ceasefire and some Iranian economic relief, but it does not resolve the nuclear file in any meaningful technical sense, nor does it address the underlying sources of tension.” By Tsvetana Paraskova for Oilprice.comMore Top Reads From Oilprice.comECB: Iran Peace Deal Won't Erase Europe's Energy Price ShockFalling Murban and Dubai Prices Open Arbitrage to U.S. and EuropePoland Moves To Tax Fuel Windfalls Earned During Iran War