Global Oil Demand Destruction Set to Intensify as Iran War Drags on, IEA Says
The International Energy Agency on Wednesday forecast a sharper decline in global oil demand this year than previously expected as the Middle East conflict drives up energy prices.The agency anticipates oil consumption to contract by 420,000 barrels a day in 2026, compared with an 80,000-barrel drop expected last month.Oil demand is projected to plunge by 2.45 million barrels per day in the second quarter."The petrochemical and aviation sectors are currently most affected, but higher prices, a weaker economic environment and demand-saving measures will increasingly impact fuel use," the IEA said.Petrochemical feedstock availability is becoming constrained, while high jet fuel prices have impacted aviation activity, according to the IEA report.Energy prices have soared since the start of the US-Israel war with Iran at the end of February. The conflict has disrupted shipments through the Strait of Hormuz. US President Donald Trump recently rejected Iran's counteroffer to end the war, dimming prospects of an imminent deal between the two sides.Brent crude fell 0.6% to $107.11 a barrel in Wednesday trading, while West Texas Intermediate rose 0.5% to $102.65.Separately, the Organization of the Petroleum Exporting Countries on Wednesday lowered its oil demand growth forecast for 2026.Global oil supply is projected to decline by 3.9 million barrels a day on average in 2026, to 102.2 million barrels, creating a supply-demand gap."More than 10 weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace," according to the report.Cumulative supply losses from Gulf producers have already exceeded 1 billion barrels since the war began, the IEA said."The current supply-demand gap is significantly smaller, however, as the market was already in surplus heading into the crisis while producers and consumers alike are responding to market signals," the IEA said.Demand may swing back to growth towards the end of the year if shipments through the Strait of Hormuz restart in the third quarter, though "supply will likely be slower to recover," the IEA said."As a result, the oil market remains in deficit until the final quarter of the year," according to the report. "With global oil inventories already drawing at a record clip, further price volatility appears likely ahead of the peak summer demand period."