The International Energy Agency has slashed its forecast for worldwide oil demand in 2026, projecting a decline of 2.5 million barrels per day as ongoing Middle East conflicts and failed US-Iran talks continue to disrupt oil flows. In its September Oil Market Report, the agency revised its outlook downward by 940,000 barrels per day compared to its August projection. The report paints a picture of a global oil market stuck in limbo, with demand not expected to return to pre-conflict levels until late 2027.
Global demand is projected to reach 102.45 million barrels per day in 2026, down from 104.95 million barrels per day in 2025, before climbing back to 105.01 million barrels per day in 2027. Supply constraints are equally severe: worldwide oil production dropped 1.6 million barrels per day month-over-month in August to 100.1 million barrels per day, with more than 10 million barrels per day of Gulf production still offline due to security concerns. The agency expects global supply to average 100.7 million barrels per day in 2026, falling 5.7 million barrels per day short of 2025 levels and 1.3 million barrels per day below its previous estimate. Gulf oil supply tumbled 2 million barrels per day in August to 21.9 million barrels per day, representing a shortfall of 10.1 million barrels per day compared to prewar output. OPEC+ crude production declined 1.5 million barrels per day in August to 33.1 million barrels per day, with the 17 quota-bound members producing 7.3 million barrels per day below their August target. Global observed oil inventories fell another 95 million barrels in August, bringing total drawdowns since February to 507 million barrels. North Sea Dated crude averaged $91.00 per barrel in August, up $7.61 from July, before spiking to $113.48 per barrel on September 9.
The report characterizes 2026-27 as "essentially a lost period" for oil demand growth, with consumption losses concentrated in middle distillates and petrochemical feedstocks, particularly across Asia. The IEA warns that the continuing Middle East conflict poses additional downside risks to its assumption of a relatively quick demand rebound in 2027. According to the agency, oil demand won't recover to its prewar February level of roughly 106 million barrels per day until the final months of 2027, essentially wiping out two years of potential growth. Refining margins hit record territory in the Atlantic Basin during August, driven by sharply higher diesel cracks, while US and European refinery profitability reached new monthly peaks and European diesel cracks surpassed $100 per barrel in early September.
The IEA expects Gulf production to remain depressed through 2026, with fourth-quarter Gulf exports anticipated to stay at roughly 60% of prewar levels before recovering by 4.5 million barrels per day in 2027. Non-OPEC+ production offers some counterbalance: the Americas "Quintet" of the US, Canada, Brazil, Guyana, and Argentina is forecast to add 1.4 million barrels per day in 2026 and another 1 million barrels per day in 2027. But with OPEC+ crude output expected to drop 5 million barrels per day in 2026 to 34.5 million barrels per day, the offset won't be enough to prevent a historic contraction. The physical market tightness drove crude into extreme backwardation as Middle East and Russian supply disruptions squeezed availability and pushed buyers toward Atlantic Basin supplies, while tanker costs surged alongside rising security risks and strong demand for vessels.