Oil demand is expected to contract by 80,000 barrels per day (kb/d) on average in 2026 as the Iran war upends the global outlook. This is according to the April edition of the IEA’s Oil Market Report published on 14 April and highlighting the sharpest decline since Covid-19 slashed fuel consumption. In the March report, the expected growth in demand was stated as 730 kb/d.

While initially the deepest cuts in oil use have come in the Middle East and Asia Pacific, mainly for naphtha, the IEA expects demand destruction to spread as scarcity and higher prices persist. Notable changes in demand to date have come from Asian petrochemical producers curtailing operating rates as feedstock supply dried up. Households and businesses using LPG have also been impacted, while flight cancellations across the Middle East, parts of Asia and Europe have led to a sharp drop in jet fuel consumption.

A growing number of countries have implemented policies to reduce demand, while others have implemented measures to shield consumers from the full impact of rising fuel prices.

On the supply side, the IEA says global oil supply plummeted by 10.1 mb/d to 97 mb/d in March, with continued attacks on energy infrastructure in the Middle East and ongoing restrictions to tanker movements through the Strait of Hormuz, leading to the largest disruption in history. OPEC+ production fell 9.4 mb/d month-on-month (m.o.m) to 42.4 mb/d while non-OPEC+ supply declined 770 kb/d m-o-m to 54.7 mb/d, as lower Qatari output offset gains in Brazil and the United States.

Consumers and refiners alike are tapping into oil inventories to mitigate the immediate impact of supply disruptions. Global observed oil inventories fell by 85 mb in March, with stocks outside of the Middle East Gulf drawn down by a significant 205 mb (-6.6 mb/d) as flows through the Strait of Hormuz were choked off. At the same time, with limited outlets after the effective closure of the Strait, floating storage of crude and oil products in the Middle East rose by 100 mb and onshore crude stocks in the region were up by 20 mb. China added 40 mb of crude to tanks.

Oil prices posted their largest ever monthly gain in March in the wake of the most severe oil supply shock in history. Spot crude benchmarks and differentials soared, outpacing futures markets, as refiners anxiously scrambled to replace locked in Middle Eastern cargoes. At the time of writing, North Sea Dated crude was trading around $130/bbl – $60/bbl above pre-conflict levels.

More insights from the IEA’s Energy Everything podcast episode ‘Mounting disruptions in oil markets’.