Investing.com — The International Energy Agency (IEA) sharply cut its oil supply and demand forecasts, warning that both are now expected to decline from 2025 levels as conflict in the Middle East disrupts energy flows and weighs on the global economy.
The IEA now projects global oil demand to fall by 80,000 barrels per day in 2026, a marked drop from the 640,000 bpd year-on-year increase it had forecast in its previous monthly report. A projected 1.5 million bpd decline in the second quarter would be the sharpest drop in consumption since the Covid-19 pandemic, IEA said.
“Demand destruction will spread as scarcity and higher prices persist,” the agency said, noting that the steepest declines in consumption have so far been concentrated in the Middle East and Asia-Pacific, mainly in naphtha, LPG, and jet fuel.
On the supply side, the Paris-based watchdog now expects global output to drop by 1.5 million bpd this year, swinging from a projected rise of 1.1 million bpd just a month ago. Global oil supply plummeted to 97 million bpd in March, with OPEC+ production falling 9.4 million bpd month-on-month to 42.4 million bpd.
The IEA attributed the turmoil to attacks on energy infrastructure across the region and Iran’s effective closure of the Strait of Hormuz — which it said have caused the largest oil supply disruption in history, with 10.1 million bpd lost in March.
Shipments through the Strait fell to around 3.8 million bpd in early April, compared with more than 20 million bpd in February before the crisis, with the overall loss in oil exports exceeding 13 million bpd.
The disruption has rippled through to refineries, with Middle East and Asian plants cutting runs by around 6 million bpd in April. Global crude runs are now expected to decline by 1 million bpd on average across 2026.
Global observed oil stocks fell by 85 million barrels in March as importers drew down inventories to offset the supply shortfall.
The announcement of a two-week ceasefire provided some relief, though the IEA cautioned that it “remains unclear whether the ceasefire will turn into a lasting peace and a return to regular shipping flows through the Strait of Hormuz.”
The agency said its base case assumes a resumption of regular deliveries from the Middle East by mid-year, while acknowledging this could prove too optimistic.
In a more adverse scenario of prolonged conflict, it warned, “energy markets and economies around the world need to brace for significant disruptions in the months to come.”