The International Energy Agency has just published its monthly Oil Market Report, taking down its global oil demand forecast for 2026 into negative territory at -80kb/d, as a consequence of the Middle East Gulf conflict. We note that this is a very bearish view and would equate to the sharpest decline in oil demand since Covid. Asian petrochemicals are at the centre of this demand destruction.
On the supply side, the IEA now expects global oil supply to decline by -1.5mb/d in 2026 YoY vs last month''s estimate of 1.1mb/d of growth. This is driven by the loss of production in the Middle East, with supply in the region down by c. 10mb/d in March.
Global observed oil inventories outside of the Middle East have drawn down by -205mb (or -6.6mb/d) in March as consumers and refiners tap into inventories to mitigate the immediate impact of the supply disruption in the Strait of Hormuz.
The IEA forecasts a resumption of flows through the Strait of Hormuz by May although not back to pre-conflict levels, caveating that ceasefire negotiations are ongoing and remain unclear at this stage.
Demand:
. As the Iran conflict continues, the IEA now forecasts global oil demand to fall by 80kb/d in 2026, down from last month''s estimate of 640 kb/d of growth in 2026 and down from 770kb/d actual growth in 2025.
. We note that this is very bearish on the economy - in most non-oil supply led recessions demand still goes up, and from peak to trough during the GFC only 2% of demand was lost
. Petrochemicals are at the centre of demand destruction: This huge downgrade is led by demand destruction in the Middle East and Asia Pacific, mainly for naphtha, LPG and jet fuel.
. We expect coal switching in China: The IEA notes that chemical processes that use coal as a feedstock have seen a major improvement in margins since February.
Supply:
. Global oil supply consequently fell be 10.1mb/d in March to 97mb/d (8mb/d crude and 2mb/d condensates and NGLs) with the majority of...
