A US-Iran peace deal could limit the 2026 oil demand decline to about 700,000 barrels per day from the 1.2 million b/d drop Kpler projected earlier this month, the consultancy said Thursday.
The US and Iran are expected to sign a deal on June 19, allowing shipping through the Strait of Hormuz to resume.
Kpler still expects supply to recover gradually, with flows improving through July and normalizing by October.
Analysts said demand risks now lean higher because supply disruptions and higher energy prices drove most of the recent weakness.
Faster supply restoration and lower crude prices could further strengthen consumption.
Liquefied petroleum gas demand increased by 190,000 b/d in 2025, while Kpler had expected another 300,000 b/d increase in 2026 before the conflict. It now forecasts a decline of about 200,000 b/d, led by India and China.
India relied on the Middle East for over 90% of its liquefied petroleum gas imports in 2025, leaving demand vulnerable to supply disruptions.
At the same time, feedstock shortages forced Chinese propane dehydrogenation plants to cut operating rates, Kpler said.
Kpler sees upside of 200,000 b/d to 300,000 b/d in the second half of 2026 liquefied petroleum gas demand if Hormuz reopens quickly.
India could benefit first as authorities prioritize cargoes needed for domestic supply security, Kpler added.
Naphtha demand fell by 40,000 b/d in 2025 and could drop another 200,000 b/d in 2026, marking a 330,000 b/d downgrade from February forecasts.
China, South Korea and Japan recorded the deepest losses amid petrochemical feedstock shortages, Kpler said.
Kpler estimates naphtha demand fell by 900,000 b/d over the year in May, the weakest month of the downturn. An upward revision of 80,000 b/d is estimated in H2 2026 if Middle East supplies gradually return.
Gasoline demand rose by 330,000 b/d in 2025, but Kpler now expects a decline of about 20,000 b/d in 2026, a reduction of roughly 130,000 b/d from pre-conflict forecasts.
Higher pump prices, supply shortages and conservation measures weakened gasoline use, while China's expanding electric vehicle fleet accelerated demand erosion. Kpler expects demand to remain soft through Q3 2026.
A peace agreement could lift gasoline demand forecasts by 100,000 b/d to 150,000 b/d in the third and fourth quarters of 2026 as supplies improve and retail fuel prices ease, according to Kpler.
Jet fuel demand increased by 260,000 b/d in 2025, but Kpler projects a 100,000 b/d decline in 2026.
It cut Q2 and Q3 forecasts by 500,000 b/d and 380,000 b/d, respectively, citing route disruptions and higher fuel costs.
Kpler expects airlines in the Middle East and Asia to bear the greatest impact, while Europe, particularly the UK and France, and parts of Africa also face pressure due to dependence on Gulf fuel supplies.
Diesel demand grew by 260,000 b/d in 2025 but could fall by about 230,000 b/d in 2026. Kpler estimates Q2 demand dropped 740,000 b/d over the year as disruptions hit Asia, Europe and Africa.
Asia led the decline as disruptions in the Strait of Hormuz constrained supplies, while higher prices and slowing industrial activity pressured demand across Europe and Africa, where dependence on Gulf imports left consumers particularly exposed, Kpler said.
A US-Iran peace deal could lift diesel demand by about 300,000 b/d from August through year-end as fuel supplies recover, prices ease from Q2 highs and industrial activity gradually improves, according to Kpler.
Kpler views the shock as temporary and expects recovery to begin in Q4 2026. Even so, refined products demand may not reach 103 million b/d until after 2027 as elevated prices, inventory rebuilding and trade rerouting slow the rebound.