The International Energy Agency (IEA) has cautioned that crude oil demand is set to face a significant drop in the second quarter of 2026, marking the largest decline since the Covid-19 pandemic hit fuel consumption. The IEA predicts an 80,000 barrels per day contraction in oil demand this year due to the disruptions caused by the Iran war.
This projected decline of 1.5 million barrels per day in the second quarter of 2026 would be the most substantial decrease since the onset of the Covid-19 crisis. The Middle East and Asia Pacific regions have experienced the most significant reductions in oil consumption, particularly in naphtha, LPG, and jet fuel. The IEA report highlights that as scarcity and higher prices persist, the impact of reduced demand will extend globally.
Global crude oil processing facilities are facing challenges due to disruptions in feedstock supplies and infrastructure damages, leading to tightened global product markets. In March, oil prices recorded their highest monthly gain ever following a severe oil supply shock.
Spot crude benchmarks and differentials surged, surpassing futures markets, as refiners rushed to replace Middle Eastern cargoes. The IEA noted that a two-week ceasefire offered temporary relief to global oil markets amid supply and trade disruptions spreading worldwide.
However, the lasting impact of the ceasefire and the restoration of regular shipping flows through the Strait of Hormuz remain uncertain. The resumption of flows through this key waterway is crucial in alleviating pressure on energy supplies, prices, and the global economy.
Consumers and refiners are depleting oil inventories to offset the immediate effects of supply disruptions. Despite an accumulation of on-land and offshore inventories in the Middle East and China, global observed oil stocks decreased by 85 million barrels in March.
Oil stocks in importing Asian countries fell by 31 million barrels, with further declines anticipated in April. The IEA’s forecast assumes a return to regular oil and gas deliveries from the Middle East to international markets by mid-year, albeit not at pre-conflict levels.
