IEA: Global oil demand to decline sharply as prices stay high

Global oil supply is expected to tighten this year as the conflict in the Middle East reduces exports from regional producers, the International Energy Agency (IEA) said on April 14. The IEA also warned that the largest oil-supply shock in history could coincide with a decline in global oil demand as prices remain elevated.

Supply outlook: tightening after Middle East disruptions

The IEA said the US-Iran conflict has “deeply reshaped” the global crude market. Before the war, the IEA and other organizations projected the world would be oversupplied with oil in 2026. Instead, with the Hormuz Strait closed and Gulf energy infrastructure damaged, Brent crude futures reached a fresh record near $150 per barrel in Monday trading.

In its latest monthly report, the IEA forecast that global oil supply will fall by 1.5 million barrels per day (bpd) this year, about 1.5% of global demand. At the start of the year, the IEA had forecast global supply would rise by 2.5 million bpd in 2026, and in March it projected a 1.1 million bpd increase.

Demand outlook: decline expected alongside higher prices

The IEA also projected that world oil demand will fall this year. It said the Gulf conflict has upended the outlook for global oil consumption, predicting that world oil consumption in 2026 will fall by 80,000 bpd instead of rising by 640,000 bpd as forecast in March.

In the near term, the IEA said the supply loss is expected to widen after attacks on energy infrastructure and the closure of the Hormuz Strait. It cited a drop of 10.1 million bpd in March, with the deficit rising by 2.9 million bpd in April.

On the demand side, the IEA projected world oil consumption will fall by 1.5 million bpd in Q2 2026, the steepest quarterly decline since the Covid-19 pandemic. It said demand destruction will widen as fuel shortages and high fuel prices persist, with reductions most pronounced in the Middle East and Asia-Pacific, particularly for naphtha, LPG, and aviation gasoline.

Supply-demand balance and market risk

Under the IEA’s updated supply-demand projection, world oil supply this year will be only about 410,000 bpd above demand. In the March report, the IEA projected a global surplus of 2.46 million bpd.

Some analysts have gone further, with eight Reuters analysts polled projecting that world oil demand would exceed supply by an average of 750,000 bpd in 2026.

Hormuz Strait flows and scenarios

The IEA said restoring crude flows through the Hormuz Strait is the single most important factor in alleviating pressure on energy supply, prices, and the global economy.

It noted that flows of crude oil, refined products, and LPG through the Hormuz Strait reached only 3.8 million bpd by early April, down from about 20 million bpd before the war.

In the baseline scenario, by mid-year, Middle East oil shipments to international markets are expected to return to normal levels but remain below pre-war levels. In the more severe scenario, with extended supply disruptions, the world would need to draw about 2 billion barrels from stockpiles and demand would need to fall by 5 million bpd year-over-year in the period from Q2 to Q4 this year.

IEA director comments

Speaking at the Atlantic Council in Washington, DC on Monday, IEA Director Fatih Birol said no new energy cargoes had yet been loaded on ships from the Middle East in April, indicating rising supply disruption ahead. He said that in March, energy cargoes delivered to buyers had come from before the war, while in April no energy cargoes from the Middle East had yet been loaded.

Birol said, “As of today, we are losing 13 million barrels per day of crude from the Middle East,” adding that the figure for tomorrow may be higher. On gas, he said the Russia-Ukraine conflict has removed about 75 bcm of supply, and that the figure is now even larger.

He called the US-Iran war an unprecedented crisis in world history and said that if the disruption is prolonged, it will intensify the problem.