Uche Cecil Izuora
The International Energy Agency (IEA) has released its 2026 Global Oil Market Report, revealing that World oil demand would contract by 420,000 barrels a day (kb/d y-o-y) in 2026, to 104 million barrels a day (mb/d).
This translates to 1.3 mb/d less than the Agency’s pre-war forecast. The biggest decline is in 2Q26, down by 2.45 mb/d, of which the OECD accounts for 930 kb/d and the non-OECD for 1.5 mb/d.
The petrochemical and aviation sectors are currently most affected, but higher prices, a weaker economic environment and demand-saving measures will increasingly impact fuel use.
The report showed that global oil supply declined by a further 1.8 mb/d in April to 95.1 mb/d, taking total losses since February to 12.8 mb/d.
Output from Gulf countries affected by the closure of the Strait of Hormuz was 14.4 mb/d below pre-war levels. Higher production and exports from the Atlantic Basin provide some relief. Assuming flows through the Strait gradually resume from June, global oil supply is projected to decline by 3.9 mb/d on average in 2026, to 102.2 mb/d.
The report also noted that refinery crude throughputs are forecast to plunge by 4.5 mb/d in 2Q26 to 78.7 mb/d, and by 1.6 mb/d to 82.3 mb/d for 2026 as a whole, as operators contend with infrastructure damage, export restrictions and lower feedstock availability. Refining margins remain at historically high levels, supported by record middle distillate cracks. Refiners are adapting to the crisis, with new trade flows emerging to compensate for lost Gulf product exports.
Global observed oil inventories drew by 129 mb in March and by a further 117 mb in April, according to preliminary data. Continued disruptions to seaborne trade through the Strait of Hormuz saw on-land stocks drop by 170 mb (-5.7 mb/d) in April, while oil on water rebounded by 53 mb. OECD countries’ on-land stocks plummeted by 146 mb (-4.9 mb/d) while visible non-OECD stocks fell by 24 mb.
Also, North Sea Dated traded in an unparalleled wide range of almost $50/bbl in April, with the disruption to Middle East flows triggering a surge in prices of about $16.50/bbl m-o-m to an average of $120.36/bbl. Time spreads oscillated in line with flat prices, with prompt time spreads in WTI and Brent futures ending the month at around $5/bbl. Dated’s premium to ICE Brent futures weakened from a record $35/bbl in mid-April to $3/bbl in early May.
More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace. Benchmark oil prices have posted wild swings in response to conflicting signals on whether the United States and Iran will soon reach a deal to end the conflict, with North Sea Dated plunging from a high of $144/bbl to below $100/bbl before rebounding again. At the time of writing, the two countries remained at loggerheads over an accord to reopen the Strait and end the war, with North Sea Dated around $110/bbl.
With Hormuz tanker traffic still restricted, cumulative supply losses from Gulf producers already exceed 1 billion barrels with more than 14 mb/d of oil now shut in, an unprecedented supply shock.
The current supply-demand gap is significantly smaller, however, as the market was already in surplus heading into the crisis while producers and consumers alike are responding to market signals.
On the supply side, Saudi Arabia and the UAE have successfully redirected some exports to terminals loading outside of the Strait. At the same time, stocks from commercial and government strategic storage sites in consuming countries are flowing into markets to offset part of the losses.
Observed global inventories, including oil on water, were drawn down by 250 mb over March and April, or 4 mb/d. Producers outside of the Middle East also pushed output higher and lifted exports to record levels in response to the crisis.
Indeed, 2026 supply growth expectations from the Americas have been revised up by more than 600 kb/d since the start of the year, to 1.5 mb/d on average. Moreover, Atlantic Basin crude oil exports, now heading primarily to hard-hit East of Suez markets, have increased by 3.5 mb/d since February, with notable gains from the United States, Brazil, Canada, Kazakhstan and Venezuela.
Russia’s crude oil exports have also risen, as repeated attacks on its refineries have cut domestic use and led to higher shipments, while the United States temporarily waived sanctions on Russian oil on water.
On the demand side, refiners have reduced runs and sharply scaled back crude imports. Chinese seaborne crude imports fell by a massive 3.6 mb/d from February to April, according to Kpler.
Major reductions in imports were also seen in Japan (-1.9 mb/d), Korea (-1 mb/d) and India (-760 kb/d). But while the slowdown in global refinery activity – by around 5 mb/d y-o-y in April – has temporarily eased tensions in the crude market, tightness is quickly spreading to product markets.
End users are also reducing consumption. Global oil demand is now expected to contract by 2.4 mb/d y-o-y in 2Q26 and to decline by 420 kb/d for the year as a whole, 1.3 mb/d weaker than our pre-conflict forecast.
For now, the steepest losses are seen in the petrochemical sector where feedstock availability is becoming increasingly constrained. Aviation activity is also running well below normal levels, helping to ease some of the pressure on jet fuel prices, which nearly tripled after Middle Eastern exports were cut off. Higher prices, a deteriorating economic environment and demand-saving measures will further weigh on global oil consumption.
While demand may swing back to growth towards the end of the year if a deal to end the war is agreed that allows flows through the Strait of Hormuz to gradually resume from 3Q26, as is assumed in this Report, supply will likely be slower to recover.
As a result, the oil market remains in deficit until the final quarter of the year. With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period.