Uche Cecil Izuora
The International Energy Agency (IEA) has reversed its global oil demand forecast for 2026, citing the impact of higher fuel prices and supply disruptions linked to the Middle East conflict, while warning that global inventories continue to decline at an accelerated pace.
In its June Oil Market Report, the IEA now expects global oil demand to fall by 1.1 million barrels per day (MMbpd) year-over-year in 2026, a downgrade of 700,000 bpd from its previous forecast. The Agency said oil deliveries plunged by 5 MMbpd during the second quarter as consumers and refiners responded to higher prices and limited product availability.
The weaker outlook comes as markets assess the potential reopening of the Strait of Hormuz following a U.S.-Iran interim agreement that could restore oil flows from the Persian Gulf.
“While the U.S.-Iran interim agreement paves the way for a rebound in Middle East exports, operational and political constraints, including prolonged demining and unresolved transit arrangements, leave downside risks to the outlook,” the agency said.
Despite expectations for a gradual recovery in Gulf exports, the IEA forecasts global oil supply will decline by 3.9 MMbpd to 102.4 MMbpd in 2026 before rebounding sharply by 8 MMbpd in 2027 to 110.3 MMbpd. The agency said non-OPEC+ production growth and emergency stock releases have helped offset some of the supply losses resulting from the conflict.
The report noted that oil flows through Hormuz have already begun to recover, rising from a May low of 9.6 MMbpd to approximately 12 MMbpd in early June. However, a full recovery is expected to take time as shipping lanes must be cleared and regional supply chains normalized.
The IEA also highlighted the continued erosion of global inventories. Observed oil stocks declined by 143 MMbbl in May, equivalent to a drawdown rate of 4.6 MMbpd. Since the start of the Gulf conflict, global inventories have fallen by an average of 3.8 MMbpd.
OECD government inventories have been particularly affected, declining by 163 million bbl since the conflict began and falling to their lowest level since December 1990 as emergency stock releases accelerated.
Refining activity has also weakened significantly. Global refinery crude runs are now forecast to contract by 2 MMbpd in 2026 to 82 MMbpd, with the largest reductions occurring in China, the Middle East, Eurasia and other Asian markets.
The agency expects demand growth to recover in 2027 as trade flows normalize, oil prices remain lower and economic conditions improve. Global oil demand is projected to increase by 2 MMbpd next year to 105.3 MMbpd.
At the same time, the IEA forecasts global oil supply could rise by approximately 8 MMbpd in 2027, creating a significant market surplus and providing an opportunity to replenish depleted commercial and strategic inventories.
Benchmark crude prices have already responded to expectations of increased supply.
North Sea Dated crude prices fell more than $40/bbl from April highs to approximately $82/bbl by mid-June, while ICE Brent futures were trading near $81/bbl at the time of the report’s publication.