Global oil demand will contract by 1.6 million barrels per day (mb/d) in 2026, 510,000 barrels more than previously projected, as the prolonged closure of the Strait of Hormuz and high fuel prices continue to suppress consumption worldwide, the International Energy Agency (IEA) has said.

In its Oil Market Report for August , the Paris-based energy watchdog said annual demand contractions would ease from 4.9mb/d in the second quarter to 2.8mb/d in the third quarter, before returning to growth in the final quarter of the year. Global demand is projected to expand by 2.4mb/d in 2027.

On supply, the IEA said global oil output rose by 2.4mb/d to 101.5mb/d in July but remained 6.3mb/d below year-ago levels, with 8.3mb/d of Gulf production still shut in. Renewed hostilities and maritime disruptions in July and early August undermined recovery efforts, cutting third-quarter supply projections by 1.7mb/d from last month’s estimate. Global supply is now expected to fall by 4.3mb/d on average in 2026 before rebounding by 8.3mb/d in 2027 to 110.3mb/d.

The report attributed the volatility to the breakdown of the mid-June Iran-US ceasefire, which reversed a recovery in Gulf supplies. Gulf production still rose by 2.5mb/d in July to 23.9mb/d, but regional exports fell by 2.1mb/d to 15mb/d after Hormuz was effectively closed again in early July.

Benchmark crude prices traded within an unusually wide $40 per barrel range in July. North Sea Dated rose by $25.67 to close the month at $96.80 per barrel.

Global observed oil inventories plunged by 69 million barrels in July, driven largely by disruptions to exports from the Gulf and Caspian Sea. 

The IEA said total observed oil stocks were down by 410 mb since the start of the war, or by 2.7 mb/d on average.

The IEA warned that although the market is projected to return to surplus later this year, risks remain substantial, with the urgency of reopening the Strait of Hormuz rising as inventory buffers are rapidly depleted.