The International Energy Agency (IEA) has sharply downgraded its outlook for global oil demand in 2026, citing the impact of the Gulf supply crisis, while forecasting a gradual restoration of flows through the Strait of Hormuz that could reach 8 million barrels per day by 2027.
The agency now expects global oil demand to contract by 1.1 million barrels per day next year, a significant deterioration from its previous forecast for a decline of 420,000 barrels per day. The revision reflects elevated energy prices and major supply disruptions linked to the regional conflict.
Looking ahead, the IEA anticipates demand growth will return in 2027, with consumption rising by 2 million barrels per day as energy markets stabilize, trade routes recover and broader economic conditions improve.
U.S.-Iran Agreement Seen as Important Breakthrough
The United States and Iran have reached a preliminary accord aimed at ending hostilities, with a formal signing ceremony expected on Friday.
In its monthly report released Wednesday, the IEA described the agreement as the most meaningful progress in negotiations since the conflict began.
“While details of the deal have yet to be clarified and several issues remain outstanding, it is an encouraging step forward,” the IEA said. “A full recovery will not be immediate, however, as mines will have to be removed from the main shipping lanes and supply chains will take time to normalise.”
Oil Prices Continue to Retreat
Crude prices extended their recent decline on Wednesday, with Brent crude falling below $80 per barrel and U.S. West Texas Intermediate trading near $76 per barrel.
Brent has dropped more than 8% this week and is now trading at its lowest level since early March as markets increasingly price in the prospect of improving supply conditions.
Supply Losses Remain Severe
According to the IEA, global oil supply is expected to decline by 3.9 million barrels per day this year, with approximately 20% of worldwide oil production effectively stranded in the Persian Gulf due to the ongoing disruption.
The agency expects supply to recover significantly next year, reaching 8 million barrels per day as transportation routes reopen and production normalizes.
Global oil output in May remained 13.6 million barrels per day below levels recorded before the conflict. Exports from Gulf producers fell by 1.1 million barrels per day and were nearly 15 million barrels per day below February volumes.
Inventories Continue to Decline
Global observed oil inventories fell by 143 million barrels during May, bringing the average rate of stock draws since the conflict started to 3.8 million barrels per day.
The IEA also reported that government-controlled inventories among OECD nations declined by 163 million barrels, reaching their lowest level since December 1990.
The continued drawdown highlights the strain placed on global energy markets as producers and consumers navigate one of the most significant supply disruptions in recent years.