The International Energy Agency (IEA) lowered its global oil demand forecasts for 2026 and 2027 in its latest monthly report, while raising its biofuel supply expectations, with the overall signals pointing to continuously building supply pressure in the global oil market.
The IEA cut its 2026 global oil demand forecast to 102.29 million barrels per day, down 90,000 barrels per day from last month's projection. Its 2027 demand forecast was also revised down to 104.30 million barrels per day, a reduction of 80,000 barrels per day. At the same time, the IEA raised its forecast for the increase in global biofuel supply from 2025 to 2027 by 130,000 barrels per day, further intensifying pressure on the supply side of the market.
The combination of weakening demand and expanding supply is weighing on the oil price outlook. The IEA noted that expectations for a normalization of global oil supply chains will support a demand rebound in 2027, but still-elevated forward fuel prices will continue to drag on consumption recovery.
Demand Keeps Contracting, Recovery Pushed to Second Half of 2027
On a quarterly basis, the year-on-year decline in global oil demand is expected to gradually narrow. According to IEA data, the year-on-year drop will reach 4.95 million barrels per day in the second quarter of 2026, narrow to 3.82 million barrels per day in the third quarter, and further shrink to 2.69 million barrels per day in the fourth quarter. The demand downturn will extend into the first quarter of 2027, with a year-on-year shortfall of 1.84 million barrels per day, and growth is not expected to return until the second quarter of 2027.
The outlook for road fuel demand is particularly weak. The IEA said in the report that, affected by the sharp rise in oil prices in 2026, road fuel demand in 2027 is "expected to be close to zero growth." Combined with accelerating global vehicle electrification and improving fuel efficiency, an already sluggish demand narrative is facing further pressure.
By region, the recovery is clearly divided. The IEA expects oil consumption in OECD countries in 2027 to be 4% below 2019 levels, while consumption in non-OECD countries over the same period will be 10% higher, with growth mainly coming from Africa, India and China. In the United States, the IEA said "U.S. oil consumption—another recent source of resilience—continues to lose momentum," as evidenced by a dismal end to the summer driving season.
In terms of demand structure, about 80% of the increase in global oil use in 2027 will come from liquefied petroleum gas/ethane and naphtha, while traditional transport fuels will contribute increasingly less to overall growth, reflecting a deeper shift in the energy consumption mix.
Biofuel Supply Accelerates, Raised on Energy Security Push
While oil demand is under pressure, the biofuel supply side is expanding at a faster pace. The IEA raised its global biofuel supply forecast in the monthly report, expecting supply to increase by 480,000 barrels per day between 2025 and 2027, a gain of nearly 15%, up 130,000 barrels per day from last month's forecast. The main driver comes from governments strengthening blending mandates and pursuing policies aimed at reducing exposure to refined product price volatility.
By category and region, road transport remains the core source of biofuel demand and is expected to account for nearly 85% of longer-term liquid biofuel growth. Ethanol is the main driver of road biofuel expansion, led by Brazil and India; the United States dominates the renewable diesel segment; and growth in biodiesel consumption is being driven by Indonesia.
The IEA also cautioned that feedstock supply, weather conditions and cost pressures could still constrain these targets.
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