IEA deepens 2026 oil supply cut as Hormuz closure drags on

The International Energy Agency on Wednesday cut its 2026 global oil supply forecast for the second consecutive month, warning that renewed Middle East hostilities and the continued closure of the Strait of Hormuz are pushing the world deeper into an oil-market deficit.

Supply Drop Accelerates

Global oil supply is now expected to fall by 4.3 million barrels per day this year, down to 102.02 million bpd — the IEA's lowest forecast yet for 2026, according to the agency's August oil market report. The figure marks a sharp downward revision from the 3.7 million bpd decline projected in July.reuters

"With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive, we have again lowered supply estimates for the rest of the year," the IEA said.reuters

Gulf oil production reached 23.9 million bpd in July but remains 8.3 million barrels below pre-conflict levels, while regional exports fell by 2.1 million bpd to 15 million bpd after the effective closure of the Strait of Hormuz in early July and attacks on tankers and energy infrastructure.tradersunion

Demand Destruction Deepens

The supply crunch is now feeding back into consumption. The IEA revised its global oil demand decline forecast to 1.6 million bpd for 2026, up from its earlier estimate of a 1 million bpd reduction, as high fuel prices and shipping disruptions weigh on economic activity. Demand is expected to drop 2.8 million bpd in the third quarter alone, following a 4.9 million bpd decline in Q2.wsj

The agency now projects a third-quarter supply deficit of 1.8 million bpd — more than double its estimate from last month. Reported global inventories have fallen below 7 billion barrels for the first time since April 2025, with stocks declining by 410 million barrels since late February.tradersunion

Volatile Prices, Thin Margins

Oil prices have reflected the instability. Benchmark crude swung within a range of nearly $40 per barrel in July, briefly touching $100 on July 23 before retreating, according to The Wall Street Journal News Corp ↗ 0.52%. North Sea Dated was trading around $92 per barrel at the time the IEA prepared its report.wsj+1

Global refinery throughput ran nearly 5 million bpd below year-earlier levels in July, while Atlantic Basin refining margins hit record highs as supplies of diesel, jet fuel, and gasoline tightened. The IEA still expects the market to shift back toward surplus late in the year, but warned the margin for error has narrowed as inventory buffers erode and diplomatic efforts to restore shipping lanes remain stalled.tradersunion