IEA forecasts sharp 2026 oil demand decline

August 23 ------ The International Energy Agency (IEA) expects the global oil market to face a sharp contraction in demand this year as the prolonged closure of the Strait of Hormuz and elevated fuel prices weigh heavily on consumption.

In its August Oil Market Report, the IEA forecasts global oil demand to fall by 1.6 million barrels per day (mb/d) in 2026, 510,000 b/d more than projected in its previous report. The decline is expected to ease from 4.9 mb/d in the second quarter to 2.8 mb/d in the third, before demand returns to growth in the final quarter. For 2027, the agency expects global oil demand to increase by 2.4 mb/d.

Oil supply rose by 2.4 mb/d in July to 101.5 mb/d but remained 6.3 mb/d below year-earlier levels, with 8.3 mb/d of Gulf production still offline. Renewed hostilities and maritime disruptions in July and early August have further delayed the recovery, prompting the IEA to cut its third-quarter supply forecast by 1.7 mb/d from last month.

Full-year supply is now expected to decline by 4.3 mb/d in 2026 before rebounding by 8.3 mb/d in 2027 to 110.3 mb/d.

Refinery activity also remains well below normal. Global crude throughputs rose in July but stood at 80.9 mb/d, almost 5 mb/d below the same month last year. Middle East product export disruptions and attacks on Russian refineries led the IEA to cut its third-quarter refinery run forecast by a further 370,000 b/d.

Global refinery throughputs are now expected to decline by 2.5 mb/d in 2026 before recovering by 3.5 mb/d next year. Tight supplies of light and middle distillates have meanwhile pushed refining cracks and margins in the Atlantic Basin to record levels.

Oil inventories fell sharply in July, with global observed stocks dropping by 69 million barrels as disruptions to Gulf and Caspian Sea exports reduced the volume of oil in transit. Onshore inventories fell by a more modest 6 million barrels as the pace of IEA emergency stock releases slowed, despite continued draws in Chinese crude stocks.

Total observed inventories stood at just under 7.9 billion barrels, down 410 million barrels since the start of the war, equivalent to an average decline of 2.7 mb/d.

Oil prices reflected the heightened volatility, trading across an unusually wide range of almost $40 per barrel during July as geopolitical developments collided with tightening crude and product markets. WTI and Brent futures returned to backwardation, while North Sea Dated crude jumped $25.67/bbl during the month to close at $96.80/bbl. At the time of the report, it was trading at around $92/bbl

Source: safety4sea.com