MONTREAL (Oil Monster): The International Energy Agency has cut its global oil demand outlook again, forecasting consumption will fall by 2.6 million barrels per day in 2026 as high fuel prices, restricted product availability and weaker economic conditions weigh on energy use.
Global oil demand is now expected to average approximately 102.4 million bpd this year. That represents a slightly deeper contraction than the 2.5-million-bpd decline forecast by the agency in September.
Demand is expected to recover by about 2 million bpd in 2027 if Middle East supply conditions improve, but global consumption would still remain approximately 620,000 bpd below its 2025 level.
The headline demand collapse can be misleading on its own. The IEA expects oil demand to fall 2.6 million bpd this year, but global supply is forecast to fall even more sharply, by 5.8 million bpd.
That helps explain why the agency still sees oil markets in deficit through year-end despite one of the steepest demand contractions in recent history. The remaining buffer is also much thinner: global observed inventories were 509 million barrels below pre-war levels at the end of September.
See how the IEA is using emergency reserves →The IEA expects global oil consumption to decline by an average of 2.6 million bpd during 2026.
Its September Oil Market Report had forecast a 2.5-million-bpd annual contraction, meaning the October update deepens the expected decline by approximately 100,000 bpd.
Demand is forecast to fall by 2.5 million bpd year over year during the fourth quarter alone.
The agency said restricted petroleum-product availability, exceptionally high fuel prices and deteriorating economic conditions in some markets are weighing on consumption.
Middle distillates remain one of the weakest parts of the demand outlook.
The IEA expects diesel to account for approximately 25% of the decline in global oil consumption during 2026.
Diesel prices have climbed sharply as refinery disruptions in the Middle East and Russia reduced available supply at the same time inventories were already depleted.
The impact is spreading beyond transport markets because diesel is widely used in freight, agriculture, construction and industry.
The IEA expects tight diesel conditions to persist well into next year.
Global diesel exports in September were approximately 700,000 bpd below year-earlier levels.
A combined loss of about 1.3 million bpd of diesel supply from Russia and the Middle East was only partly offset by increased output elsewhere.
That shortfall has contributed to record diesel prices and unusually strong refining margins in markets able to access sufficient crude and operating capacity.
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The IEA continues to expect oil demand to recover in 2027, but the rebound is now forecast to be materially weaker.
Global demand is projected to increase by approximately 2 million bpd next year.
In September, the agency expected a 2.6-million-bpd recovery, meaning the latest outlook reduces expected 2027 growth by roughly 600,000 bpd.
Even after the projected rebound, global oil consumption would remain about 620,000 bpd, or 0.6%, below its 2025 level.
Based on the IEA's current projections, the 2-million-bpd recovery would lift global consumption from approximately 102.4 million bpd in 2026 to around 104.4 million bpd in 2027.
The forecast assumes that Middle East hostilities gradually ease and product availability improves.
A prolonged conflict or renewed disruption to shipping, refineries or production could weaken that recovery further.
While demand remains weak, physical oil supply improved sharply during September.
Global production increased by approximately 2.5 million bpd month over month to 102.3 million bpd.
OPEC+ producers accounted for about 2.1 million bpd of the increase, led by Saudi Arabia.
The United Arab Emirates drove much of the increase outside the OPEC+ group.
Saudi Arabia and other Gulf producers restored substantial volumes as crude export routes recovered from the severe disruptions earlier in the conflict.
Producers increased shipments through the Strait of Hormuz while simultaneously using alternative pipeline and export routes.
However, repeated attacks on tankers, pipelines and other infrastructure mean the recovery remains fragile.
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Despite September's strong monthly recovery, the IEA expects global oil supply to average just 100.7 million bpd in 2026.
That represents an annual decline of approximately 5.8 million bpd.
The size of the supply contraction helps explain why oil markets remain tight despite the simultaneous decline in demand.
Global oil supply could reverse course sharply next year if production and shipping normalize.
The IEA forecasts a 7.7-million-bpd increase in average supply during 2027.
That would put global supply at roughly 108.4 million bpd based on the agency's current forecast.
If realized alongside only a 2-million-bpd demand recovery, the increase would eventually produce a substantially looser market balance.
However, the agency cautions that renewed attacks in the Gulf place that recovery at risk.
Global inventories remain one of the most important constraints on the market.
Observed oil stocks declined by another 10 million barrels in September.
Onshore inventories fell by 113 million barrels, more than offsetting a 103-million-barrel increase in oil held on the water as Gulf exports recovered.
By the end of September, global observed inventories were approximately 509 million barrels below their end-February level.
The location of the remaining inventory also matters.
A large increase in oil held aboard tankers does not provide the same immediate buffer as crude and products stored near refiners and consumers.
The IEA said onshore oil inventories are hovering around their lowest levels since at least 2016.
Non-OECD crude stocks declined by approximately 76 million barrels in September, with China accounting for 78% of that decline.
Global refinery throughput is expected to fall to approximately 81.3 million bpd in October as seasonal maintenance combines with damaged capacity and poor economics in several regions.
The IEA expects refinery runs to recover to around 84.6 million bpd by the end of the year.
For 2026 as a whole, refinery throughput is forecast to fall by 2.3 million bpd to 81.7 million bpd before increasing by approximately 2.8 million bpd in 2027.
Refiners in Europe and Asia are dealing not only with expensive crude but also record tanker freight costs.
Those transportation expenses have compressed refining margins in regions that rely heavily on imported crude.
U.S. refiners have performed better because access to comparatively discounted domestic feedstocks has supported margins.
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Governments have also drawn heavily on emergency inventories to offset physical supply shortages.
IEA members initially agreed to release 400 million barrels of emergency oil stocks and later increased total commitments to approximately 426 million barrels.
About 331 million barrels had been released by the time of the October Oil Market Report.
The IEA is urging members that have not completed their commitments to accelerate remaining releases, with particular emphasis on diesel.
The combination of weak consumption and recovering production would normally point toward a looser oil market.
However, the depth of the supply disruption, depleted onshore stocks, refinery constraints and continuing shipping problems mean the IEA still expects the market to remain in deficit through the end of 2026.
The agency says an eventual surplus could emerge during 2027 if the expected supply recovery materializes.
The IEA's demand outlook remains materially weaker than the view held by OPEC.
OPEC recently forecast global oil demand would still grow by approximately 400,000 bpd in 2026.
By comparison, the IEA expects consumption to contract by 2.6 million bpd.
The difference illustrates the unusually high level of uncertainty surrounding the effects of fuel shortages, elevated prices and geopolitical disruption on global oil use.
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The immediate market focus will remain on diesel availability, refinery recovery, tanker traffic through the Strait of Hormuz and the pace at which Gulf production returns.
If regional supply normalizes while demand remains weak, the IEA's projected 2027 surplus could begin to emerge.
If renewed attacks reduce production or shipping again, inventories could fall further before producers and refiners have rebuilt sufficient buffers.
The October report therefore points to an unusual market: global oil consumption is falling sharply, but physical supply constraints remain severe enough to keep prices and refined-product markets under pressure.
How much does the IEA expect global oil demand to fall in 2026?
The IEA forecasts global oil demand will decline by approximately 2.6 million barrels per day in 2026 to 102.4 million bpd.
How did the IEA change its forecast from September?
The agency deepened its expected 2026 demand decline from 2.5 million to 2.6 million bpd and reduced its projected 2027 demand recovery from 2.6 million to 2 million bpd.
What does the IEA expect for oil demand in 2027?
Demand is expected to recover by about 2 million bpd, leaving global consumption roughly 620,000 bpd below its 2025 level.
How much oil does the IEA expect the world to produce in 2026?
Global oil supply is forecast to average about 100.7 million bpd, down 5.8 million bpd from 2025.
Why is the oil market still tight if demand is falling?
Supply has fallen even more sharply, refinery capacity remains constrained, diesel markets are undersupplied and global observed inventories are 509 million barrels below their pre-war level.
When could the oil market move into surplus?
The IEA expects an eventual surplus to emerge in 2027 if Middle East supply and refining activity recover as projected.
IEA Accelerates Emergency Oil Releases and Prioritizes Diesel
EIA Raises Q4 Brent Forecast to $105
OPEC Cuts 2026 Oil Demand Growth Outlook
Saudi Arabia, UAE Rebuild Crude Exports as Hormuz Recovers
OPEC+ Warns Shipping Costs Have Surged
Source: International Energy Agency, Oil Market Report, October 2026.
