Global oil demand set for first annual drop since the COVID-19 pandemic, IEA says

International Energy Agency Projects Historic Oil Demand Contraction in 2026

Global oil demand set for first - The International Energy Agency announced on Friday that worldwide petroleum consumption is projected to decrease by one million barrels daily throughout 2026. This marks the inaugural year-over-year decline since 2020, when widespread coronavirus lockdowns brought aviation to a standstill and forced numerous industrial facilities to close their doors. While this comparison presents this year's downturn in a somewhat favorable light—given that demand plummeted by approximately eight million barrels per day during the pandemic's peak—it simultaneously highlights the severe economic damage inflicted by the Strait of Hormuz closure.

Regional and Product-Specific Impacts

According to the agency's monthly assessment, the contraction demonstrates significant variation across both product categories and geographic regions. Previous analysis from the IEA identified Asia's economies, which rely heavily on imports, as experiencing the most pronounced losses. Additionally, petrochemical feedstocks including naphtha and liquefied petroleum gas have been particularly hard hit, as their supply networks depend substantially on passage through the strategically vital Strait of Hormuz.

Market Prices Reflect Ongoing Tensions

At the time of publication, Brent crude—the international pricing benchmark—was trading near $76 per barrel. This represents roughly a six percent increase compared to levels before the United States and Israel initiated military strikes against Iran in late February. Nevertheless, these prices remain considerably lower than the peaks approaching $120 that emerged in March during the conflict's most intense period. Meanwhile, the American benchmark, West Texas Intermediate, was trading at a lower level of approximately $72 per barrel.

Supply Recovery from Low Base

Global petroleum supply experienced a notable improvement during the previous month, albeit emerging from an exceptionally low foundation. Worldwide production surged by 4.1 million barrels per day in June, reaching 98.8 million barrels. This increase occurred as the partial reopening of the Strait of Hormuz enabled Gulf-producing nations to reactivate previously shut-in wells. Despite this recovery, output remained 9.4 million barrels per day below pre-conflict levels. Gulf exports, which included cargoes redirected around the strait, climbed by 6.5 million barrels per day to total 16.1 million. Prior to hostilities commencing in late February, the region had shipped an average of 24 million barrels daily.

Inventory Changes and Future Projections

Global oil inventories expanded for the first time since American and Israeli strikes on Iran triggered the conflict, bringing an end to months of record-breaking drawdowns. However, stockpiles within the wealthiest economies continued to shrink as purchasers remained cautious about increasing imports. The IEA's projections depend on an assumption currently facing considerable pressure: that a ceasefire remains in effect and the Strait of Hormuz progressively reopens. Under this scenario, global supply would decrease by 3.7 million barrels per day this year, creating a production shortfall of 860,000 barrels per day relative to demand. The market would subsequently expand by 7.5 million barrels next year, potentially pushing it into surplus territory.

Escalating Geopolitical Developments

This week witnessed the second and substantially larger violation of last month's truce agreement. Following Iranian military strikes against three commercial vessels on Monday and Tuesday, US Central Command targeted more than 80 locations across Iran, encompassing air defense systems, coastal radar installations, and over 60 Revolutionary Guard small boats. Washington simultaneously withdrew the authorization permitting Iranian oil exports. Iran responded by launching drones and missiles toward Bahrain and Kuwait, though these attacks caused minimal damage. US President Donald Trump has since announced the termination of the ceasefire.

Tehran maintains that safe maritime passage depends entirely on the route it establishes within the Strait of Hormuz. Recent shipping data from Kpler indicates that traffic through the strait dropped to just 13 tankers on Wednesday, compared to a weekly average of 33 vessels the previous week.

The contraction is "highly skewed in both product and regional terms," the agency noted in its monthly report.