Uche Cecil Izuora
The International Energy Agency (IEA) has drawn global attention to declining refining capacity the impact that is likely to spread globally as higher fuel prices and persistent scarcity force households, businesses, and industries to cut back on consumption.
In its latest report, the IEA, said global oil demand is now expected to contract by about 80,000 barrels per day on average in 2026, representing a sharp downward revision of 730,000 bpd compared to its previous forecast.
It attributed the decline primarily to the ongoing conflict involving Iran, which has upended global energy markets, triggered supply shortages, and pushed prices sharply higher.
Early demand destruction has been most evident in the Middle East and Asia Pacific regions, particularly affecting products such as naphtha, liquefied petroleum gas (LPG), and jet fuel.
The disruption has also affected refining activity, with global crude processing volumes falling significantly due to limited feedstock availability and infrastructure damage.
Refineries in the Middle East and Asia were forced to cut runs by about 6 million bpd in April, bringing total throughput down to 77.2 million bpd.
The IEA now expects global refinery runs to decline by an average of 1 million bpd in 2026, tightening product markets and pushing refining margins higher. Middle distillate margins, in particular, have surged to record levels.
The Agency warned that global oil demand is likely going to witness a sharp contraction in the second quarter of 2026, with the International Energy Agency (IEA) projecting a decline of about 1.5 million barrels per day, the steepest drop since the COVId-19 pandemic disrupted fuel consumption worldwide.
On the supply side, the report highlighted an unprecedented disruption, with global oil output plunging by 10.1 million bpd in March to 97 million bpd. The decline was largely driven by continued attacks on energy infrastructure in the Middle East and restrictions on tanker movements through the Strait of Hormuz, the report said.
Production among OPEC+ countries dropped sharply by 9.4 million bpd month-on-month to 42.4 million bpd, while non-OPEC+ output fell by 770,000 bpd to 54.7 million bpd, as declines in some regions offset gains in countries such as Brazil and the United States.
Also, oil inventories have also come under pressure, with global observed stocks falling by 85 million barrels in March. Stocks outside the Middle East Gulf recorded the steepest drawdown, as restricted flows through the Strait of Hormuz disrupted supply chains.
Equally the crude accumulation has increased within the Middle East due to limited export routes, while China has continued to build strategic reserves, adding about 40 million barrels during the period.
The tightening supply-demand balance has driven oil prices sharply higher, with spot crude benchmarks recording their largest-ever monthly gains in March. Physical crude prices surged to about $150 per barrel at the peak of the disruption, significantly above futures market levels, reflecting acute shortages in available cargoes.
The IEA further warned that a prolonged disruption could lead to sustained volatility in oil markets, forcing countries to rely more heavily on inventories and implement demand management measures to cushion the impact of rising prices.
Besides, the IEA pegged Nigeria’s oil production capacity at about 1.42 million bpd, reflecting ongoing constraints in output despite efforts to boost production levels, despite the 1.5 million bpd quota by OPEC.