Global oil demand expected to decline by 1.6 mb/d in 2026, expand by 2.4 mb/d in 2027: IEA

The International Energy Agency (IEA) has revised its forecast, predicting that global oil demand will decline by 1.6 million barrels per day (mb/d) in 2026, a significant increase from the previous estimate. This drop is primarily attributed to the ongoing closure of the Strait of Hormuz and high fuel prices, which are curbing oil consumption.

Despite the contraction, the IEA anticipates that annual declines will ease from 4.9 mb/d in the second quarter of 2026 to 2.8 mb/d in the third quarter, before resuming growth in the final quarter. The agency projects that global oil demand will expand by 2.4 mb/d in 2027.

In the second quarter of 2026, demand is expected to contract by 4.9 mb/d, followed by a further decline to 2.8 mb/d in the third quarter. However, the outlook changes in the fourth quarter, with a projected growth of 580 kb/d. The global oil balance is now anticipated to show a deficit of 1.8 mb/d in the third quarter of 2026, more than double the previous estimate of around 800 kb/d.

Oil inventories have taken a significant hit, plummeting by 69 mb, or 2.2 mb/d, in July, following a brief respite in June. This sharp drop is largely due to a decrease in oil on water. By the end of July, observed stocks fell below 7.9 billion barrels for the first time since April 2025. Cumulative stock draws between February and July reached 410 mb, averaging 2.7 mb/d.

Although the market is forecast to return to a surplus by the end of the year, the risks remain substantial, and the urgency of reopening the Strait of Hormuz has increased. The depletion of available inventory buffers is a cause for concern. Global oil supply is now projected to fall by 4.3 mb/d in 2026, reaching 102 mb/d. However, this decline is expected to rebound by 8.3 mb/d in 2027 to 110.3 mb/d. The IEA sees higher world oil demand this year, with the agency lowering its 2024 oil demand growth forecast.