The International Energy Agency has downgraded its forecast for global oil demand in 2026, pointing to prolonged supply disruptions in the Gulf region, while expecting conditions to improve steadily over the following year.
The agency now forecasts a decline of 1.1 million barrels per day in global oil demand next year, compared with its previous estimate for a reduction of 420,000 barrels per day. Higher energy costs and ongoing supply constraints were cited as the primary drivers behind the revision.
Demand is expected to recover in 2027, with the IEA projecting growth of 2 million barrels per day as trade routes reopen, supply chains stabilize and economic activity strengthens.
Diplomatic Progress Offers Hope for Energy Markets
The agency highlighted the preliminary agreement reached between Washington and Tehran as a major development in efforts to resolve the conflict.
A formal signing is expected later this week, and the IEA described the agreement as the most significant diplomatic breakthrough since hostilities began.
“While details of the deal have yet to be clarified and several issues remain outstanding, it is an encouraging step forward,” the IEA said. “A full recovery will not be immediate, however, as mines will have to be removed from the main shipping lanes and supply chains will take time to normalise.”
Crude Prices Extend Weekly Losses
Oil prices continued to retreat as traders responded to improving geopolitical sentiment.
Brent crude slipped below $80 per barrel, while WTI traded around $76. Brent has now fallen more than 8% this week and is trading at levels not seen since early March.
The decline reflects growing expectations that global energy supplies will gradually recover if the agreement proceeds as planned.
Supply Recovery Expected Next Year
The IEA forecasts global oil supply will fall by 3.9 million barrels per day in 2026, largely because significant volumes remain stranded in the Persian Gulf.
Roughly one-fifth of the world’s oil supply continues to be affected by the disruption, although the agency expects a substantial rebound next year as exports and shipping activity resume.
Production in May remained 13.6 million barrels per day below pre-conflict levels, while exports from Gulf producers were down 1.1 million barrels per day and almost 15 million barrels per day below February levels.
Inventory Drawdowns Highlight Market Tightness
Global oil stockpiles continued to shrink during May, declining by 143 million barrels.
Since the conflict began, inventories have been falling at an average rate of 3.8 million barrels per day, underscoring the pressure on available supplies.
Meanwhile, OECD government inventories fell by 163 million barrels, reaching their lowest level in more than three decades.
Despite signs of diplomatic progress, the agency indicated that rebuilding supply chains and restoring market balance will remain a gradual process.
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