The International Energy Agency on Tuesday scaled its forecast for both global demand and supply of crude oil in 2026 due to the devastating impact of the Iran war.
The IEA now sees global oil demand contracting by 80,000 barrels per day in 2026, compared with a year-on-year rise of 730,000 barrels per day in its previous report.
“This is 730 kb/d less than in last month’s report and a forecast 1.5 mb/d 2Q26 decline would be the sharpest since Covid-19 slashed fuel consumption,” the agency said in its April Oil Market Report.
As oil-importing nations desperately sought alternative sources from a diminishing global supply, physical crude oil prices soared to nearly $150 per barrel, setting new records.
This surge significantly exceeded futures market prices, leading to a stark and growing disconnect between physical and futures crude valuations.
“Even steeper gains have been seen for refined products, with middle distillate prices in Singapore reaching all-time highs above $290/bbl,” the IEA said.
Oil consumption takes hit
The most significant reductions in oil consumption initially occurred in the Middle East and Asia Pacific regions, primarily affecting naphtha, liquefied petroleum gas (LPG), and jet fuel.
The rising fuel prices have had a broad impact, affecting both households and businesses that rely on LPG.
Additionally, the significant number of flight cancellations across the Middle East, parts of Asia, and Europe has resulted in a substantial decrease in jet fuel consumption.
In response to these market conditions, many countries have adopted policies aimed at curbing demand, while others have introduced measures designed to protect consumers from the complete burden of the increased fuel costs.
Global oil demand is projected to see a year-on-year contraction of 800,000 barrels a day in March, worsening to a 2.3 million barrels per day drop in April, IEA said.
“However, demand destruction will spread as scarcity and higher prices persist,” the Paris-based energy watchdog said in its report.
Historic supply disruption and alternative routes
In March, global oil supply experienced the largest disruption in history, plunging by 10.1 million barrels per day to 97 million barrels per day, according to the IEA data.
This significant decrease was caused by persistent attacks on energy infrastructure in the Middle East and continuous restrictions on tanker traffic through the Strait of Hormuz.
OPEC+ production decreased by 9.4 million barrels per day month-over-month (m-o-m), reaching 42.4 million barrels a day, the data showed.
Concurrently, non-OPEC+ supply saw a smaller decline of 770,000 barrels per day m-o-m, falling to 54.7 million barrels a day.
This overall drop in non-OPEC+ supply occurred despite production increases in Brazil and the United States, as it was offset by reduced output from Qatar, the IEA said.
In early April, shipments through the Strait remained severely restricted, with loadings of crude, natural gas liquids and refined products averaging around 3.8 mb/d, compared with more than 20 mb/d in February ahead of the crisis.
Alternative export routes have seen a significant increase, rising to 7.2 million barrels per day from under 4 million barrels per day prior to the conflict, according to the IEA report.
These routes primarily include shipments from Saudi Arabia’s west coast and Fujairah on the UAE’s east coast, as well as the Iraq-Türkiye ITP pipeline to Ceyhan.
Damage to energy infrastructure and associated production curtailment have resulted in significant supply losses, totaling over 360 million barrels in March and a projected 440 million barrels in April.
Furthermore, the overall loss in oil exports has surpassed 13 million barrels daily.
Market inventory and future scenarios
Oil inventories are being utilised by both consumers and refiners to lessen the immediate effect of supply interruptions, IEA said.
Despite increases in both on-land and offshore inventories in the Middle East, along with further stock builds in China, global observed oil stocks dropped by 85 million barrels in March, according to the data.
A lasting, negotiated settlement to the conflict in the Middle East between the US and Iran remains elusive at this time, the agency said.
In the report, the IEA presents a forecast that assumes a resumption of regular deliveries of oil and gas from the Middle East to international markets by mid-year, although not back to pre-conflict levels.
The IEA recognises that this scenario could prove too optimistic, considering the high degree of uncertainty over how the situation may develop.
“We also present an alternative case where risks to energy production and trade in the Middle East remain high due to a prolonged conflict,” the agency said.
In this case, energy markets and economies around the world need to brace for significant disruptions in the months to come.