The International Energy Agency cut its 2026 global oil demand forecast to a decline of 1.6 million barrels per day in its August Oil Market Report, deepening its projection by 510,000 barrels per day from last month as the Strait of Hormuz closure and elevated fuel prices continue to crush global consumption.
Demand Destruction Widens
In its closely watched monthly report, the IEA said annual demand contractions will ease from 4.9 million barrels per day in the second quarter to 2.8 million barrels per day in the third quarter, before returning to growth of 580,000 barrels per day in the final quarter of 2026. Global oil demand is projected to expand by 2.4 million barrels per day in 2027 as supply conditions normalise.
Benchmark crude prices traded in an exceptionally wide range of nearly $40 per barrel in July as the US-Iran ceasefire collapsed and hostilities resumed around the Strait. North Sea Dated crude rose $25.67 per barrel over the month to end at $96.80 before trading around $92 in early August. Prompt differentials for WTI and Brent futures returned to backwardation, reflecting tight physical markets.
Supply Losses Deepen
Global oil supply rose by 2.4 million barrels per day to 101.5 million in July but remained 6.3 million below year-ago levels, with 8.3 million barrels per day of Gulf output still shut in. Renewed hostilities and maritime disruptions in July and early August undermined the partial recovery seen in June, reducing projected third-quarter supply by 1.7 million barrels per day compared with the July report.
The IEA now forecasts global supply will decline by 4.3 million barrels per day on average in 2026 to 102 million, as growth of 1.4 million from the Americas only partly offsets losses in the Middle East and Russia. Gulf oil production rose to 23.9 million barrels per day in July, up from 19.6 million in June, but regional exports fell sharply to 15 million after the Strait was effectively closed again and infrastructure came under attack.
Inventories at Critical Lows
Global observed oil inventories plunged by 69 million barrels in July as renewed disruptions reduced volumes of oil on water. At just below 7.9 billion barrels, total observed stocks were down by 410 million barrels since the war began, or 2.7 million barrels per day on average. The pace of IEA emergency stock releases slowed while Chinese crude oil stocks continued to draw.
Refinery crude throughputs remained nearly 5 million barrels per day below year-ago levels at 80.9 million, with tighter light and middle distillate markets boosting cracks and margins in the Atlantic Basin to record highs.
With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive, we have again lowered supply estimates for the rest of the year.
The IEA projects global supply will rebound by 8.3 million barrels per day in 2027 to 110.3 million, contingent on a resolution to the Strait of Hormuz standoff and the return of shut-in Gulf production.
Sources: IEA Oil Market Report August 2026; OilPrice.com; US EIA Short-Term Energy Outlook
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