- Global oil demand forecast to fall by 80 kb/d in 2026 amid Middle East conflict.
- Supply drops by 10.1 mb/d in March, marking the largest disruption on record.
- Crude prices surge to around US$130/bbl, with physical markets nearing US$150/bbl.
The April edition of the International Energy Agency Oil Market Report highlights an unprecedented shock to global oil markets, driven by escalating conflict in the Middle East and severe disruptions to supply chains and trade routes.
Global oil demand is now expected to contract by 80 kb/d in 2026, a sharp downgrade of 730 kb/d from the previous forecast. The agency notes that demand is set to decline by 1.5 mb/d in the second quarter of 2026, marking the steepest drop since the Covid 19 pandemic. Early demand destruction has been concentrated in the Middle East and Asia Pacific, particularly affecting naphtha, LPG and jet fuel, with broader impacts anticipated as supply shortages and elevated prices persist.
On the supply side, global oil production fell dramatically by 10.1 mb/d in March to 97 mb/d. This represents the largest disruption in history, largely due to sustained attacks on energy infrastructure and restrictions on tanker movements through the Strait of Hormuz. Output from OPEC+ declined by 9.4 mb/d month on month to 42.4 mb/d, while non OPEC+ supply dropped by 770 kb/d to 54.7 mb/d, as reduced production in Qatar outweighed gains in Brazil and the United States.
Refining activity has also been significantly impacted. Global crude throughput fell as feedstock shortages and infrastructure damage constrained operations. Refinery runs in the Middle East and parts of Asia declined by approximately 6 mb/d in April to 77.2 mb/d. For the full year, global crude runs are projected to average 82.9 mb/d, down by 1 mb/d from previous expectations. Tight product markets have driven refining margins higher, with middle distillate cracks reaching record levels.
Oil inventories have been drawn down sharply in response to supply disruptions. Global observed stocks fell by 85 mb in March, with a significant decline of 205 mb outside the Middle East Gulf region due to restricted flows through the Strait of Hormuz. At the same time, storage levels within the Middle East increased, with floating storage rising by 100 mb and onshore stocks up by 20 mb. China added 40 mb of crude to its reserves.
Oil prices recorded their largest monthly increase on record in March. Benchmark crude prices surged as refiners competed for limited supply, with North Sea Dated crude trading at around US$130/bbl, approximately US$60/bbl above pre conflict levels. Physical crude prices briefly approached US$150/bbl, significantly outpacing futures markets, while refined product prices, particularly middle distillates, reached historic highs.
A recently announced two week ceasefire has provided temporary relief to markets, though uncertainty remains over its durability and the potential resumption of normal shipping through the Strait of Hormuz. The waterway remains a critical choke point, with flows in early April averaging just 3.8 mb/d, compared to more than 20 mb/d before the crisis. Alternative export routes have partially offset losses, increasing to 7.2 mb/d, but total export disruptions still exceed 13 mb/d.
In response to the crisis, countries and companies are drawing on strategic and commercial inventories, while also implementing measures to curb demand and shield consumers from rising energy costs. Petrochemical producers in Asia have reduced operating rates, LPG users are facing shortages, and widespread flight cancellations have cut jet fuel consumption.
The outlook remains highly uncertain. The agency’s base case assumes a partial recovery in Middle Eastern oil and gas flows by mid year, though not to pre conflict levels. However, a prolonged disruption scenario could lead to sustained supply shortages and heightened volatility, posing significant risks to global energy markets and economic stability.
Author: Bryan Groenendaal
