Global oil demand is forecast to decline by 1.1 mb/d year-on-year in 2026, rebounding to 2 mb/d in 2027. This is according to the June IEA Oil Report in which analysts forecast a 3.9 mb/d fall in supply to 102.4 mb/d, rebounding by 8 mb/d to 110.3 mb/d in 2027.

The report states that in May, output declined to 94.5 mb/d, down 600 kb/d m‑o‑m and 13.6 mb/d below pre‑conflict levels. Operational and political constraints, including prolonged demining and unresolved transit arrangements, are identified as factors determining downside risks to the outlook.

The report warns that while the reductions in demand for crude oil and refined products are significant, the buffers in the system continue to erode at a record pace. Global observed oil stocks have declined by 3.8 mb/d on average since the start of the war, with a sizeable draw of 143 mb (-4.6 mb/d) in May, according to preliminary data. During the period, OECD government inventories fell by 163 mb (-1.8 mb/d) to their lowest level since December 1990 as the pace of emergency stock releases accelerated.

Further declines in the coming months could still take global oil stocks to historic lows before the market balance shifts to surplus towards the end of the year.

The report concludes that the expected rebound in supply may provide a welcome respite to the market and an opportunity to replenish depleted inventories, or to build new strategic reserves, as countries review their energy strategies and policies in response to the crisis.

Further reading: China learns to live on less fuel, to the relief of oil markets – Reuters.