By Nasir Lubwama
Global oil demand is now expected to end the year lower, after months of high fuel prices, disrupted supply routes and tight product availability cut into consumption, according to the International Energy Agency.
In its latest oil market report, the IEA says demand for 2026 has been revised down by 700,000 barrels per day from its May forecast. The downgrade follows a sharp fall in second-quarter deliveries, which dropped by 5 million barrels per day compared with the same period last year.
For the full year, demand is projected to decline by 1.1 million barrels per day. The agency expects a recovery next year, with demand seen rising by 2 million barrels per day as trade flows normalise, prices ease and the economic outlook improves.
Global supply is also under pressure. The IEA expects output to fall by 3.9 million barrels per day this year to 102.4 million barrels per day, before rebounding by 8 million barrels per day to 110.3 million barrels per day next year.
In May, global production fell to 94.5 million barrels per day, down 600,000 barrels per day from April and 13.6 million barrels per day below pre-conflict levels.
The report says an interim agreement between the United States and Iran could open the way for a gradual recovery in Middle East exports, including the reopening of the Strait of Hormuz and the lifting of a US blockade on Iranian oil traffic.
The deal, expected to be signed in Switzerland, is the biggest breakthrough since the start of the Middle East conflict. It has already cooled the market, with North Sea Dated crude falling by more than $40 per barrel to around $82 per barrel between May and mid-June.
ICE Brent futures were trading at around $81 per barrel at the time of the report, about $37 below the early April peak, but still roughly $20 higher than at the start of the year.
Shipments through the Strait of Hormuz had started rising in early June, helped by ship-to-ship transfers in the Gulf of Oman. Total flows increased from a May low of 9.6 million barrels per day to around 12 million barrels per day.
A full recovery is not expected immediately. The IEA warns that mines still have to be removed from main shipping lanes, while transit arrangements, supply chains and political issues remain unresolved.
Refinery activity has also weakened. Crude throughputs are expected to contract by 2 million barrels per day this year to 82 million barrels per day. The steepest fall came in the second quarter, where crude runs dropped by 4.7 million barrels per day compared with last year.
The cuts were deepest in China, the Middle East, Eurasia and non-OECD Asia. Refinery runs are expected to recover next year by 3.1 million barrels per day as crude supply normalises to an average of 85 million barrels per day.
Despite weaker demand, oil stocks continue to fall. The IEA says global observed inventories declined by 143 million barrels in May, equal to 4.6 million barrels per day, after a 74 million-barrel draw in April.
Since the start of the Gulf conflict, global stocks have fallen by an average of 3.8 million barrels per day. Crude accounts for 2.4 million barrels per day of that draw, while refined products account for 1.4 million barrels per day.
OECD government inventories fell by 163 million barrels over the same period, reaching their lowest level since December 1990 as emergency stock releases accelerated.
The report says the market could move into surplus towards the end of the year if supply recovers faster than demand. In 2027, demand is projected to rise to 105.3 million barrels per day, while supply could jump to about 110 million barrels per day.
That would give countries room to rebuild depleted inventories and review strategic reserves after months of disruption.
OPEC+ output remained under pressure in May. Total OPEC+ production fell to 30.3 million barrels per day, with Saudi Arabia producing 6.59 million barrels per day, Russia 8.74 million barrels per day, Iran 2.3 million barrels per day and Iraq 1.48 million barrels per day.
The IEA says Gulf supply losses are being partly offset by non-OPEC+ growth, especially from the Americas, while US strategic petroleum reserve releases have supported Atlantic Basin crude exports to markets east of Suez.
China and Japan have sharply reduced crude imports, with the two countries together cutting nearly 6 million barrels per day, or around 40 percent, as refinery activity slowed.
