World oil demand is now expected to fall 1.6 mb/d in 2026, a deeper cut than last month, as the continued closure of the Strait of Hormuz and elevated fuel prices weigh on global consumption.
MONTREAL (Oil Monster): Global oil demand is forecast to contract by 1.6 mb/d in 2026, according to the latest data cited in the IEA Oil Market Report, as the ongoing closure of the Strait of Hormuz and elevated fuel prices continue to weigh on consumption. That is 510 kb/d more than the decline projected in last month's report.
Annual contractions are expected to ease from 4.9 mb/d in the second quarter of 2026 to 2.8 mb/d in the third quarter, before demand returns to growth in the final quarter of the year. Global oil demand is projected to expand by 2.4 mb/d in 2027 as the disruptions gradually unwind.
The forecast for global oil demand in the second half of 2026 has been reduced by roughly 550 kb/d versus last month's report. The continued closure of the Strait of Hormuz is disrupting international supply chains and curtailing product availability, while elevated fuel prices are adding further downward pressure on consumption.
Demand is now projected to contract by 4.9 mb/d in the second quarter and 2.8 mb/d in the third quarter of 2026, before flipping to growth of 580 kb/d in the fourth quarter.
Global oil supply rose by 2.4 mb/d to 101.5 mb/d in July, but remained 6.3 mb/d below year-ago levels, with 8.3 mb/d of Gulf output still shut in. Renewed hostilities and maritime disruptions in July and early August undermined recovery efforts, reducing the third-quarter 2026 supply forecast by a further 1.7 mb/d compared with last month's report.
Gulf oil production rose by 2.5 mb/d in July to 23.9 mb/d, still 8.3 mb/d below pre-war levels, after a 3.7 mb/d increase in June. Regional exports, including routes bypassing the Strait of Hormuz, fell by 2.1 mb/d to 15 mb/d after the key passageway was effectively closed again in early July and oil infrastructure and tankers came under attack. Loadings peaked at 20 mb/d at the start of July but dropped to around 12 mb/d later in the month.
With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive, global oil supply is now projected to decline by 4.3 mb/d on average in 2026, to 102 mb/d, before rebounding by 8.3 mb/d in 2027 to 110.3 mb/d. Growth of 1.4 mb/d from the Americas only partly offsets losses in the Middle East and Russia.
Refinery crude throughputs increased further in July, up 1.8 mb/d on the month to 80.9 mb/d, but remained nearly 5 mb/d below year-earlier levels. Continued Middle East product export disruptions and attacks on Russian refineries reduced the third-quarter 2026 runs estimate by a further 370 kb/d. Global throughputs are now forecast to decline by 2.5 mb/d on average in 2026 and rebound by 3.5 mb/d in 2027.
Tighter light and middle distillate markets pushed Atlantic Basin refining margins to all-time highs in July, as diesel, jet fuel and gasoline cracks surged amid seasonally higher demand, supply shortfalls and depleted stocks. Product cracks and margins have continued to rise in August, setting new records in Europe.
Seaborne product trade fell 3.8 mb/d year-on-year even as US exports rose by 700 kb/d. Diesel exports from Russia, the Middle East and Asia were 1.3 mb/d lower year-on-year, equivalent to about 20% of global seaborne trade. Jet fuel exports from these regions fell by around 670 kb/d year-on-year, equal to 34% of global trade.
Global observed oil inventories plunged by 69 mb in July, or 2.2 mb/d, as renewed disruptions to exports from the Gulf and the Caspian Sea sharply reduced volumes of oil on water. Onshore stocks declined by a more modest 6 mb, as the pace of IEA emergency stock releases slowed, despite continued draws in Chinese crude oil stocks.
By the end of July, total observed oil stocks stood at just below 7.9 billion barrels, the lowest level since April 2025. Cumulative stock draws between the end of February and the end of July reached 410 mb, or 2.7 mb/d on average, since the start of the war.
The global oil balance is now expected to show a deficit of 1.8 mb/d in the third quarter of 2026, more than double the roughly 800 kb/d deficit estimated in last month's report. The market is projected to return to surplus toward the end of the year, but risks remain substantial, and the urgency of reopening the Strait has increased as previously available inventory buffers are rapidly depleting.
Benchmark crude oil prices traded in an exceptionally wide range of almost $40/bbl in July, intermittently led by geopolitical developments and tightening crude and product markets. Prompt differentials for WTI and Brent futures returned to backwardation during the month.
Prices surged to a two-month high in July as the recovery in oil supplies from the Gulf reversed course following the breakdown of the mid-June Iran-US ceasefire agreement. Expectations of diplomatic progress had triggered steep price declines in June and early July, but a return to hostilities sent prices spiking as high as $105/bbl on 23 July.
North Sea Dated rose by $25.67/bbl over July to end the month at $96.80/bbl and, at the time of writing, was trading around $92/bbl. With uncertainty again pervasive, product cracks and refining margins have continued to climb in August, setting new records in Europe.
OPEC+ crude oil production figures for June and July 2026 show output running well below implied targets across most members, even as total group supply rose month-on-month.
| Country | Jun 2026 Supply | Jul 2026 Supply | Jul 2026 vs Target | Jul 2026 Implied Target | Sustainable Capacity |
|---|---|---|---|---|---|
| Algeria | 0.98 | 0.97 | -0.03 | 1.0 | 1.0 |
| Congo | 0.27 | 0.29 | 0.02 | 0.28 | 0.27 |
| Equatorial Guinea | 0.04 | 0.04 | -0.04 | 0.07 | 0.06 |
| Gabon | 0.24 | 0.2 | 0.03 | 0.18 | 0.22 |
| Iraq | 2.41 | 2.88 | -1.5 | 4.38 | 4.87 |
| Kuwait | 1.46 | 1.74 | -0.9 | 2.64 | 2.88 |
| Nigeria | 1.51 | 1.44 | -0.06 | 1.5 | 1.42 |
| Saudi Arabia | 7.34 | 8.24 | -2.11 | 10.35 | 12.11 |
| Total OPEC-8 | 14.24 | 15.81 | -4.58 | 20.39 | 22.83 |
| Iran | 2.3 | 2.63 | — | — | 3.8 |
| Libya | 1.34 | 1.35 | — | — | 1.28 |
| Venezuela | 1.08 | 1.12 | — | — | 1 |
| Total OPEC | 18.96 | 20.91 | — | — | 28.91 |
| Azerbaijan | 0.44 | 0.44 | -0.11 | 0.55 | 0.44 |
| Kazakhstan | 1.88 | 1.55 | -0.05 | 1.61 | 1.8 |
| Mexico | 1.38 | 1.37 | — | — | 1.5 |
| Oman | 0.85 | 0.83 | -0.0 | 0.83 | 0.8 |
| Russia | 8.86 | 8.76 | -1.06 | 9.82 | 9.4 |
| Others | 0.63 | 0.66 | -0.2 | 0.87 | 0.86 |
| Total Non-OPEC | 14.04 | 13.62 | -1.43 | 13.68 | 14.8 |
| Total OPEC+ | 33.0 | 34.53 | — | — | 43.7 |
Figures in million barrels per day. Excludes Iran, Libya and Venezuela from OPEC+ compliance targets; Mexico excluded from OPEC+ compliance.
The path forward depends heavily on whether an agreement to reopen the Strait of Hormuz and secure unhindered transit through Bab el-Mandeb can be reached. Until then, supply estimates for the rest of 2026 are likely to stay under pressure, inventory buffers will keep shrinking, and refining margins may remain elevated on tight product markets. A return to demand growth in the fourth quarter of 2026 and a broader supply rebound in 2027 remain the base case, but the report flags that risks to this outlook are still substantial.
World oil demand is forecast to decline by 1.6 mb/d in 2026, a 510 kb/d deeper cut than the previous month's estimate.
The continued closure of the Strait of Hormuz is disrupting supply chains and curtailing product availability, while elevated fuel prices are adding further downward pressure on consumption.
As of July 2026, 8.3 mb/d of Gulf output remained shut in, even after global supply rose to 101.5 mb/d during the month.
North Sea Dated rose $25.67/bbl over July to end the month at $96.80/bbl, after spiking as high as $105/bbl on 23 July.
The global oil balance is now expected to show a deficit of 1.8 mb/d in the third quarter of 2026, more than double last month's estimate of about 800 kb/d.
Source: International Energy Agency (IEA), Oil Market Report.
