IEA Reports Significant Decline in Global Oil Demand for 2026

The International Energy Agency (IEA) has released its Oil Market Report for October 2026, highlighting a significant forecasted decline in global oil demand. The report indicates that demand is expected to fall by 2.5 million barrels per day (mb/d) year-on-year in the fourth quarter of 2026, with an average decrease of 2.6 mb/d throughout the year. This decline is attributed to the ongoing conflict in Iran, which has resulted in restricted product availability and soaring fuel prices, particularly affecting diesel, which accounts for 25% of the drop.

In terms of supply, global oil production saw an increase of 2.5 mb/d month-on-month in September, reaching 102.3 mb/d, primarily driven by Gulf producers. The report notes that OPEC+ countries, particularly Saudi Arabia, contributed significantly to this increase, while the UAE also played a role in non-OPEC+ supply growth. Despite this rise, the IEA projects an overall annual decline in oil supply of 5.8 mb/d for 2026, with a recovery expected in 2027.

Refinery activity is also experiencing fluctuations, with global refinery runs anticipated to hit a seasonal low of 81.3 mb/d in October before rebounding to 84.6 mb/d by the end of the year. The report highlights that record freight and crude costs have severely impacted margins in Europe and Asia, while the U.S. has seen improved margins due to discounted feedstocks. Diesel markets are under considerable pressure, with global diesel exports in September down by 700 kb/d year-on-year, primarily due to losses from Russia and the Middle East.

The report further details that global observed oil inventories decreased by 10 mb in September, with a notable decline in on-land stocks offset by an increase in oil on water. Non-OECD crude stocks fell significantly, with China accounting for a substantial portion of this decline. The report warns that without a resolution to the ongoing conflicts in the Middle East, oil markets may face further turmoil in the coming months, potentially delaying any surplus until 2027.

Looking ahead, the IEA emphasizes that while global oil demand is set to decline, oil market balances are expected to remain in deficit through the end of the year. The tightening of gasoil markets is projected to extend into 2027, with significant implications for global economic activity and inflation as high diesel prices continue to impact consumers.