EA sharply cut demand forecasts for 2026, citing conflict disrupted supply, reduced refinery activity, tightened inventories outside the Middle East, and elevated prices.
As a resolution to the U.S.–Iran conflict that began on February 28 remains elusive, energy prices have stayed elevated, albeit with intermittent pullbacks driven by headline-driven market reactions. The higher prices would dent oil demand this year, according to the International Energy Agency’s (IEA) monthly oil market report (OMR) published Tuesday.
WTI crude oil futures slipped back below the key $100-per-barrel level on Monday and continued to decline on Tuesday, driven by improving sentiment around possible U.S.–Iran negotiations, which reduced the geopolitical risk premium in oil prices.
Demand Outlook Slashed: The IEA cut global demand forecast for 2026 to imply a 80 kilo barrels per day (kb/d) reduction as the Iran war upends the agency’s global outlook. In March, it had forecast a 640 kb/day increase for the year.
The demand forecast for the second quarter has also been reduced to show a 1.5 million barrels per day (mb/d) decline, marking the sharpest cut since the COVID-19 slashed fuel consumption.
IEA sees the sharpest reduction in use in the Middle East and Asia-Pacific, mainly for naphtha, LPG and jet fuel, and it expects demand destruction to spread as scarcity and higher prices persist.
How Middle East Conflict Impacts Supply: IEA noted that global oil supply fell by 10.1 mb/d month over month (MoM) in March, blaming it on the continued attacks on energy infrastructure in the Middle East and the ongoing restrictions to tanker movements through the Strait of Hormuz.
While OPEC+ production fell by 9.4 mb/d in March to 42.2 mb/d, non-OPEC+ supply slipped 770 kb/d to 54.7 mb/d. Qatar, a non-OPEC+ country, served as a drag, offsetting gains in Brazil and the U.S.
The agency also highlighted the reduction in refinery runs in the Middle East and feedstock-constrained Asia. Global crude runs are now expected to decline by 1 mb/d on average in 2026, to 82.9 mb/d. It also noted that refining margins temporarily surged as middle distillate cracks reached all-time highs.
Global observed oil inventories fell by 85 million barrels (mb) in March, with stocks outside the Middle East seeing steep drawdowns. But floating energy product storage in the Middle East rose by 100 mb and onshore crude stocks in the region increased by 20 mb.
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