The International Energy Agency (IEA) has significantly lowered its forecast for global oil demand, concluding that the impact of the Iran conflict on consumption is far greater than previously estimated, and warning that the global oil market could return to a supply surplus next year.
In its latest monthly report, the IEA projects that global oil demand in 2026 will decrease by 1.1 million barrels per day compared to the previous year, a drop of approximately 1%, marking the largest annual decline since the 2020 pandemic. In contrast, the agency previously anticipated a reduction of only 420,000 barrels per day. The IEA attributes this substantial downward revision to war-driven oil price surges and disruptions to fuel supply chains, which together are suppressing global energy consumption.
However, weak demand has not alleviated supply tightness. The IEA notes that the conflict has led to global crude inventories continuing to deplete at a record pace. Following successive releases from government strategic reserves, official stockpiles have fallen to their lowest levels since 1990. In the coming months, if supply recovery lags behind the rate of inventory drawdowns, global stocks could decline further towards historic lows.
Looking at a longer timeframe, the IEA believes the current tightness will eventually ease. As Middle Eastern supply gradually recovers and production increases from regions outside OPEC+, the global oil market is expected to shift back into oversupply by 2027. The agency forecasts that global oil demand will increase by roughly 2 million barrels per day next year, but the growth in supply will far outpace this demand increase, creating a sufficient market surplus.
Demand Forecast Downgraded Again, Supply Disruption Scale at Historic High
The IEA has sharply increased its forecast for this year's global oil demand decline from 420,000 barrels per day to 1.1 million barrels per day, a revision of more than double.
The agency believes the high-price environment resulting from the war has begun to significantly erode end-consumer purchasing power, while fuel supply disruptions are further dragging on transportation and industrial activity, creating pressure for simultaneous slowdowns in both demand and economic growth.
Despite this, the drop in demand remains far from sufficient to offset the shock to the supply side. According to IEA estimates, the supply loss caused by this conflict exceeds 1 billion barrels, ranking it as one of the largest supply crises in modern oil market history. Faced with this massive shortfall, countries have had to respond by drawing down inventories, boosting exports from other producing regions, and actively curbing consumption, with the demand adjustment in Asia being the most pronounced.
Ceasefire Agreement Nears, But Supply Recovery Will Take Time
As the U.S. and Iran accelerate ceasefire negotiations, market expectations for a recovery in Middle Eastern supply are heating up.
The IEA states that shipping volumes through the Strait of Hormuz have seen a noticeable rebound since early June, with Gulf oil producers accelerating their export pace. Once a formal ceasefire agreement is in place, regional flows of crude and refined products are expected to increase further.
However, the agency emphasizes that supply recovery will not be instantaneous. The Strait of Hormuz and surrounding shipping lanes still face mine-clearing operations, and some ports and logistics systems require time to resume normal operations. The IEA estimates that even if a ceasefire agreement is successfully signed, it could take several months or longer for Iranian crude exports to return to pre-war levels. Transit arrangements, shipping security, and regional political factors remain uncertain and could slow the pace at which Middle Eastern supply returns to the market.
Inventories Hit Lowest Point in Over Three Decades, Replenishment Window May Open in 2027
Against the backdrop of falling demand, global inventories continue to decline rapidly, with the current supply-demand mismatch exceeding expectations.
The IEA points out that after sustained releases from national strategic petroleum reserves over recent months, official inventories have dropped to their lowest levels since 1990. In the coming months, if supply recovery is slower than the rate of inventory draw, global oil stocks could fall further to historic lows by year-end.
The IEA projects that the market will shift back to oversupply in 2027, at which point the global energy system may encounter a significant window for inventory replenishment. The agency states that preliminary supply-demand balance calculations indicate a substantial supply surplus will emerge at that time. This would not only help refill the commercial and strategic petroleum reserves that were heavily drawn down but also provide an opportunity for nations to reassess their energy security and stockpiling policies.
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