The International Energy Agency (IEA) has issued a stark revision to its global oil market forecast for 2026, predicting a historic contraction in demand triggered by a severe supply crisis stemming from conflict in the Middle East. In its April Oil Market Report, the agency now projects global oil demand to shrink by 80,000 barrels per day in 2026, a dramatic reversal from its previous forecast of a 730,000 barrel-per-day increase.
The agency highlighted the severity of the situation, stating, "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 crisis has caused physical crude oil prices to soar to nearly $150 per barrel, creating a significant and growing disconnect with futures market prices. Refined product prices have seen even steeper gains, with middle distillate prices in Singapore reaching record highs above $290 per barrel.
The demand destruction is most pronounced in the Middle East and Asia Pacific regions, heavily impacting naphtha, liquefied petroleum gas (LPG), and jet fuel. Soaring fuel costs are burdening households and businesses, while widespread flight cancellations across the Middle East, Asia, and Europe have drastically reduced jet fuel consumption. The IEA projects demand to contract by 800,000 barrels per day year-on-year in March, worsening to a 2.3 million barrel per day drop in April, warning that "demand destruction will spread as scarcity and higher prices persist."
On the supply side, March witnessed the largest disruption in history, with global oil supply plunging by 10.1 million barrels per day to 97 million barrels per day. This was driven by persistent attacks on energy infrastructure and severe restrictions on tanker traffic through the Strait of Hormuz. OPEC+ production fell by 9.4 million barrels per day month-over-month to 42.4 million barrels per day. By early April, shipments through the Strait were averaging a mere 3.8 million barrels per day, compared to over 20 million barrels per day before the crisis.
Alternative export routes have expanded significantly to 7.2 million barrels per day, up from under 4 million, including shipments from Saudi Arabia's west coast, Fujairah in the UAE, and the Iraq-Türkiye pipeline. Damage to infrastructure has resulted in staggering supply losses: over 360 million barrels in March and a projected 440 million barrels in April, with total oil export losses surpassing 13 million barrels daily. Global observed oil stocks fell by 85 million barrels in March despite some regional builds.
The IEA presented a base forecast assuming a resumption of regular Middle East deliveries by mid-year, but acknowledged this could be "too optimistic." The agency also outlined an alternative, more pessimistic case where high risks to energy production and trade persist due to a prolonged conflict, warning that in such a scenario, "energy markets and economies around the world need to brace for significant disruptions in the months to come."
