Global oil demand is expected to climb by 2.4 million barrels a day in 2027, according to a new report from the International Energy Agency. But before that rebound, the world will see consumption shrink by 1.6 million barrels daily this year, the IEA Oil Market Report shows. The ongoing blockade of the Strait of Hormuz and high fuel costs are hammering consumption harder than the agency predicted just a month ago — it's now projecting 510,000 barrels a day more in losses for 2026 than it did in its previous forecast.
The contraction won't be uniform throughout the year. Annual declines will ease from 4.9 million barrels daily in the second quarter of 2026 to 2.8 million in the third quarter, before demand flips back to growth of 580,000 barrels a day in the final three months of the year. Global oil supply rose by 2.4 million barrels a day to 101.5 million barrels daily in July, but that's still 6.3 million barrels below year-ago levels, with 8.3 million barrels of Gulf output still shut down. Supply is now forecast to fall by an average of 4.3 million barrels a day in 2026, dropping to 102 million barrels daily, before bouncing back by 8.3 million barrels in 2027 to reach 110.3 million barrels a day. Refinery crude throughputs climbed further in July but stayed nearly 5 million barrels a day below the previous year's levels, at 80.9 million barrels daily. Global throughputs are expected to decline by 2.5 million barrels a day on average in 2026 and recover by 3.5 million barrels daily in 2027. Observed oil inventories plummeted by 69 million barrels in July, dragged down almost entirely by a drop in oil on water, as renewed disruptions to exports from the Gulf and the Caspian Sea sharply reduced volumes. Total observed stocks fell to just below 7.9 billion barrels, down 410 million barrels since the start of the conflict — equivalent to an average of 2.7 million barrels a day.
The report notes that benchmark crude oil prices swung through an exceptionally wide range of almost $40 per barrel in July, driven intermittently by geopolitical developments and tightening crude and product markets. North Sea Dated rose by $25.67 per barrel over July to end the month at $96.80 per barrel and was trading around $92 per barrel at the time of writing. According to the IEA, Gulf oil production increased by 2.5 million barrels a day in July to 23.9 million barrels daily, still 8.3 million barrels below pre-war levels, while regional exports — including routes bypassing the Strait of Hormuz — fell sharply by 2.1 million barrels a day to 15 million barrels daily after the key passageway was effectively closed again in early July. "With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive," the report states, supply estimates for the rest of the year have been lowered again. The global oil balance is now expected to show a deficit of 1.8 million barrels a day in the third quarter of 2026, more than double last month's estimate of around 800,000 barrels daily.
The collapse in supply traces directly to renewed hostilities and maritime disruptions in July and early August, which undermined recovery efforts and reduced projected third-quarter 2026 oil supply by 1.7 million barrels a day compared with last month's forecast. The continued closure of the Strait of Hormuz is disrupting international supply chains and curtailing product availability, while elevated fuel prices are putting further downward pressure on oil use. Increasingly tight product markets pushed Atlantic Basin refining margins to all-time highs in July as diesel, jet fuel, and gasoline cracks surged amid seasonally higher demand, supply shortfalls, and depleted stocks. Despite a monthly increase of 1.8 million barrels a day, global refinery crude throughputs in July remained nearly 5 million barrels below year-earlier levels, with capacity elsewhere in the system currently unable to offset product supply bottlenecks. Seaborne product trade fell in tandem, down 3.8 million barrels a day year-over-year, while diesel exports from Russia, the Middle East, and Asia were 1.3 million barrels a day lower year-over-year — equivalent to about 20% of global seaborne trade.
The report warns that although the market is projected to return to surplus towards the end of this year, risks remain substantial and the urgency of reopening the Strait has increased, as previously available inventory buffers are rapidly depleting. Cumulative stock draws between the end of February and the end of July reached 410 million barrels, or 2.7 million barrels a day on average. Gulf loadings peaked at 20 million barrels a day at the start of July but dropped to around 12 million barrels daily later in the month. The bottom line: the world's oil markets remain caught between geopolitical shocks that have slashed supply and demand, high prices that are crushing consumption, and a 2027 recovery that depends entirely on whether the Strait of Hormuz can reopen.