LONDON: Global oil supply and demand look set to fall further than previously expected this year, the International Energy Agency said on Friday, as a lack of progress in ending the conflict in the Middle East delays the return of normal Gulf oil flows into 2027 and sends fuel prices soaring.
World supply in 2026 is now expected to decline by 5.7 million barrels per day, or about 6 percent, the IEA, which advises industrialised countries, said in a monthly report. That is up from a drop of around 4 percent seen previously.
An increase in attacks on oil tankers in Middle East shipping routes has helped send crude prices towards $110 a barrel this week for the first time since May. Refined products have risen even more sharply, with fuels such as diesel reaching record highs, as conflict in the Middle East and between Russia and Ukraine damages oil refineries.
Although demand is weakening under the weight of high fuel prices, supply is falling even faster, forcing inventories to be depleted at a record pace. Global stocks fell by 3.1 million bpd in August, the IEA said, to a level last seen in 2023.
“Inventories have so far played a crucial role in balancing the market,” the IEA said.
“With buffers shrinking and the global refining system stretched to the limit, the need for progress in resolving the conflict in the Middle East – and the Russia-Ukraine war, which is now in its fifth year – is greater than ever to avoid further market tightening.”
Saudi output hits lowest in over 3 decades
Attacks on Saudi energy facilities and a US blockade on Iran have cut oil output by producer group OPEC+, which declined by 1.8 million bpd to 38.8 million bpd in August, the IEA report said.
The IEA said Saudi Arabian crude supply fell by 2.3 million bpd to 6 million bpd in August, the lowest level in more than three decades after attacks disrupted facilities and shipping routes.
Houthi-linked groups struck vessels transiting Bab el-Mandeb, the Jazan refinery and shipping near Yanbu, while Iran-backed militias in Iraq used drone strikes to hit the Abqaiq oil processing complex.
Iran-aligned Houthis seized control of Yemen’s port of Mocha on Thursday, posing a further threat to Red Sea traffic.
Demand falls more than expected, to rebound in 2027
Oil demand is also falling more than expected, partly due to record fuel prices. World oil demand will drop by 2.5 million bpd this year, the IEA said, more than its previous forecast of a 1.6 million bpd decline.
By contrast, producer group OPEC still expects world oil demand to grow this year, even though it lowered its forecast for a fifth straight month on Thursday. OPEC sees demand rising by 380,000 bpd in 2026.
Both forecasters expect a rebound in fuel use next year. The IEA expects demand to rise by 2.6 million bpd in 2027 and OPEC sees a similar expansion of 2.36 million bpd.
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