The International Energy Agency now expects global oil demand to decline by 1.6 million barrels per day in 2026, a steeper contraction than previously estimated, as the prolonged Strait of Hormuz closure and elevated fuel prices weigh on consumption worldwide. The IEA August Oil Market Report, published on August 12, widened its demand decline forecast by 510,000 barrels per day from the previous month, reflecting deepening economic damage from the five-month crisis that has effectively closed the world most critical oil chokepoint.
Gulf Production Recovery Reverses Course
Global oil supply rose by 2.4 million bpd to 101.5 million bpd in July, but remained 6.3 million bpd below year-ago levels. Gulf output climbed to 23.9 million bpd but is still 8.3 million bpd below pre-war levels, with 8.3 million bpd of production still shut in. Regional exports fell sharply by 2.1 million bpd to 15 million bpd after the Strait of Hormuz was effectively closed again in early July and energy infrastructure and tankers came under attack. Loadings had peaked at 20 million bpd at the start of July before dropping to around 12 million bpd later in the month.
Refineries Struggle as Product Markets Tighten
Global refinery crude throughputs in July remained nearly 5 million bpd below year-earlier levels at 80.9 million bpd. Continued Middle East product export disruptions and attacks on Russian refineries reduced third-quarter throughput estimates by a further 370,000 bpd. Tighter light and middle distillate markets pushed Atlantic Basin refining margins to record highs, with diesel, jet fuel and gasoline cracks surging amid seasonally higher demand and depleted stocks. Diesel exports from Russia, the Middle East and Asia were 1.3 million bpd lower year-on-year, equivalent to about 20% of global seaborne trade.
Inventories Plunge to 15-Month Lows
| Metric | Value |
|---|---|
| 2026 demand decline forecast | -1.6 mb/d |
| Q2 2026 demand contraction | -4.9 mb/d |
| Q3 2026 demand contraction | -2.8 mb/d |
| Q4 2026 demand growth | +580 kb/d |
| 2027 demand growth forecast | +2.4 mb/d |
| July inventory draw | 69 mb (2.2 mb/d) |
| Cumulative draw since Feb | 410 mb (2.7 mb/d avg) |
| Q3 2026 supply-demand deficit | 1.8 mb/d |
Global observed oil inventories plunged by 69 million barrels in July, with total stocks falling below 7.9 billion barrels for the first time since April 2025. Cumulative draws since the end of February reached 410 million barrels, or 2.7 million bpd on average, as previously available inventory buffers rapidly deplete. The report noted that benchmark crude oil prices traded in an exceptionally wide range of almost $40 per barrel in July, intermittently led by geopolitical developments and tightening product markets.
The IEA emphasized the urgency of reopening the Strait of Hormuz, warning that the market is projected to return to surplus only toward the end of the year, with substantial risks remaining. Global oil demand is expected to return to growth of 580,000 bpd in the fourth quarter before expanding by 2.4 million bpd in 2027.
Sources: International Energy Agency Oil Market Report August 2026; Reuters; CNBC
discussion