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IEA Trims 2026 Oil Demand Outlook, Warns of Protracted Supply Recovery, TPH Says

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The International Energy Agency cut its 2026 global oil demand outlook, citing a sharper-than-expected contraction and warning that the post-US-Iran memorandum of understanding supply recovery will likely face significant delays, TPH Energy strategists said in a note on Wednesday.

Jeff LeBlanc, an analyst at TPH Energy, said the IEA reported that global oil inventories have dropped sharply since the outbreak of the Middle East conflict, with stocks declining by a projected 3.8 million barrels per day, including 1.8 million b/d drawn from OECD government reserves.

OECD commercial inventories fell by about 17 million barrels to 2.79 billion barrels in April, leaving stocks about 6 million barrels below the five-year average as the market was undersupplied by around 1.79 million b/d.

TPH said broader observable global inventories declined by about 74 million barrels during the month. Preliminary data for May indicated a steeper draw of about 143 million barrels, reflecting declines in strategic reserves, oil stored at sea and Chinese crude inventories.

The IEA also slashed its outlook for oil demand, forecasting that global consumption in 2026 will contract by about 1.1 million b/d, a downgrade of about 700,000 b/d from its previous assessment.

Oil demand in Q2 is projected to be about 5 million b/d lower than the previous year, led by declines of 1.6 million b/d in China and 1.4 million b/d in OECD countries.

TPH said that though seasonal factors and improved access to supplies are expected to boost demand by 6.1 million b/d between April and August, the IEA forecasts global oil consumption will remain in contraction through Q3.

The Paris-based agency projected that demand would rebound in 2027, rising by about 2 million b/d over the year.

On the supply side, the IEA projected that Gulf oil exports averaged 9.6 million b/d in May, with 6.9 million b/d shipped via alternative routes and 2.7 million b/d passing through the Strait of Hormuz.

The agency said that of the Hormuz flows, about 800,000 b/d consisted of so-called dark shipments using ship-to-ship transfers. Opaque exports rose to about 1.8 million b/d in early June, ahead of the US-Iran peace deal.

The agreement should help lift Gulf exports to about 12 million b/d in June, but the IEA said that the recovery would be prolonged due to demining operations and supply chain constraints.

Gulf oil production is expected to recover by about 8 million b/d year-over-year in 2027, TPH said, citing IEA data.

Saudi Arabia is projected to account for about half of OPEC+ Gulf production increases between Q2 and Q4, while the UAE is expected to raise output by about 730,000 b/d in 2027, with crude production exceeding 4 million b/d from the third quarter.

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