Global Oil Demand to Fall by 2.6mb/d in 2026: IEA
The IEA predicts a major drop in global oil demand by 2026, with diesel seeing the largest decline due to geopolitical tensions and economic shifts.
The International Energy Agency (IEA) has issued a stark forecast for the energy sector, predicting that global oil demand will decline by 2.6 million barrels per day (mb/d) in 2026. This significant downturn is expected to be driven by a combination of geopolitical instability, rising fuel costs, and weakening economic conditions worldwide.
Diesel to Bear the Brunt of the Decline
A major factor in this projected slump is the shift in fuel consumption patterns. According to the IEA's latest report, diesel will account for 25% of the total drop in demand. The agency highlights that the ongoing conflict in Iran is playing a critical role, as the war manifests through restricted product availability, soaring fuel prices, and a deteriorating economic outlook globally.
The impact on the market is already being felt through supply disruptions. Global diesel exports saw a significant drop of 700,000 barrels per day year-on-year in September. This decline was driven by a 1.3 mb/d reduction in supplies from Russia and the Middle East, which was only partially mitigated by increased exports from other regions.
Supply and Demand Volatility
While the 2026 outlook is bearish, the IEA suggests a partial recovery might follow. The agency forecasts that global oil demand could recover by 2 million barrels per day in 2027. However, even with this rebound, demand is expected to remain 620,000 barrels per day, or 0.6%, below the levels seen in 2025.
The supply side of the equation remains equally volatile. Key points from the IEA report include:
- OPEC+ Production: Global oil supply rose to 102.3 mb/d in September, largely driven by Gulf producers, with OPEC+ output increasing by 2.1 mb/d led by Saudi Arabia.
- Supply Projections: Global oil supply is projected to decline by an average of 5.8 mb/d to 100.7 mb/d in 2026, before a projected rebound of 7.7 mb/d in 2027.
- Fragile Recovery: The IEA warns that renewed attacks in the Gulf could make any potential recovery fragile.
Refinery Margins and Inventory Shifts
The economic landscape for refineries is also shifting. Record freight and crude costs have severely squeezed refinery margins in Europe and Asia. Conversely, access to discounted crude has propelled US refinery margins to record highs. Global refinery runs are expected to hit a seasonal low of 81.3 mb/d in October before rising to 84.6 mb/d by the end of the year.
Global oil inventories also showed a downward trend in September, edging down by 10 mb. A significant portion of this decline occurred in non-OECD stocks, which slumped by 76 mb, with China accounting for 78% of that reduction. Overall, global stocks remain 509 mb lower than they were at the end of February.