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IEA Forecasts Sharper Decline in 2026 Oil Demand Amid Hormuz Closure

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IEA Forecasts Sharper Decline in 2026 Oil Demand Amid Hormuz Closure

The International Energy Agency on Wednesday projected a larger decline in global oil demand this year than previously estimated as the continued closure of the Strait of Hormuz weighs on consumption.

Oil consumption is now forecast to decline by 1.6 million barrels a day in 2026, about 510,000 barrels more than the agency's prior estimate, it said in its latest monthly oil market report.

The Strait of Hormuz, the world's most important chokepoint for crude flows, remains effectively shut, disrupting international supply chains and restricting product availability, according to the IEA. High fuel prices are putting impacting oil consumption.

Renewed hostilities in the Middle East sent crude prices higher by more than 20% in July, with markets still uncertain over a potential reopening of the strategic waterway.

"Benchmark crude prices surged to a two-month high in July as the recovery in oil supplies from the Gulf reversed course following the breakdown of the mid-June Iran-US ceasefire agreement," the IEA said. "Expectations of diplomatic progress had triggered steep price declines in June and early July, but a return to hostilities led prices to spike."

West Texas Intermediate crude oil fell 0.3% to $82.96 a barrel in Wednesday trade, while Brent declined 0.6% to $88.38.

The IEA said annual demand contractions will ease in the ongoing three-month period to 2.8 million barrels per day from 4.9 million barrels in the second quarter, before returning to growth in the fourth quarter.

The agency sees global oil demand rising by 2.4 million barrels per day in 2027.

Global oil supply is projected to decrease by 4.3 million barrels a day to 102 million barrels in 2026, before rebounding to 110.3 million barrels next year. The IEA previously expected oil inventories of 102.6 million barrels per day in 2026.

The global oil market now faces a third-quarter deficit of 1.8 million barrels per day, more than double the roughly 800,000-barrel-per-day deficit estimated last month.

"With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive, we have again lowered supply estimates for the rest of the year," according to the agency.

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