Oil Output to Fall 4.3m Barrels/Day

The International Energy Agency (IEA) has cut its 2026 global oil supply forecast due to renewed Middle East hostilities, with global oil demand expected to fall by 1.6 million barrels per day (mb/d) in 2026. This represents a downgrade of 510,000 b/d from July, with the IEA citing the ongoing closure of the Strait of Hormuz and elevated fuel prices as key factors weighing on oil consumption.

The IEA now expects global production to fall by 4.3 mb/d this year, with global production rising by 2.4 mb/d to 101.5 mb/d in July, but remaining 6.3 mb/d below year-earlier levels. Gulf production climbed to 23.9 mb/d, yet regional exports fell 2.1 mb/d to 15 mb/d after the Strait of Hormuz was effectively closed again in early July.

In contrast, OPEC still expects demand to grow, though its estimate has been trimmed for a fourth consecutive month, to 580,000 b/d from 780,000 b/d. The producer group has consistently argued that the war has done less damage to consumption than Western forecasters believe, with the two sets of numbers implying a difference of about 2.2 mb/d in what the world will burn this year.

Observed global stocks also dropped by 69 million barrels in July to just under 7.9 billion, down 410 million since the war began. The IEA reads the damage as a blockage rather than a collapse, with oil expected to grow by 2.4 mb/d in 2027. However, Middle East oil output is expected to remain below pre-conflict levels in 2027.

## Why it matters The conflict in the Middle East has significant implications for the global oil market, with the closure of the Strait of Hormuz and attacks on tankers and infrastructure disrupting oil exports. The IEA's forecast suggests that the impact of the conflict will be felt for some time, with global oil demand and production expected to be affected in the coming years. The difference in forecasts between the IEA and OPEC also highlights the uncertainty and complexity of the global oil market, with significant implications for oil prices and the global economy.

The situation is further complicated by the decline in crude oil production in other regions, such as Nigeria, which saw a four per cent month-on-month decline in July 2026. The IEA's forecast of a 1.6 mb/d decline in global oil demand in 2026, a steeper drop than the roughly 1 mb/d decline it projected in July, also suggests that the impact of the conflict will be felt globally, with significant implications for oil prices and the global economy.