Why the Demand Forecast Has Been Cut

The International Energy Agency (IEA) raised its forecasts on Wednesday, now expecting global oil demand to drop by 1.6 million barrels per day in 2026. This is a significant increase from last month's prediction of nearly 1 million barrels per day.

Stalemate in the Strait

Despite some officials signaling a willingness to negotiate, no agreement has been reached to reopen the Strait of Hormuz and restore global shipping routes. The IEA stated on Wednesday that the deepening impact from the Strait of Hormuz blockade will cause global oil demand to fall more sharply than previously anticipated this year.

Supply Disruptions and Price Volatility

The IEA projects that global oil demand will decline by 1.6 million barrels per day in 2026, an increase of 510,000 barrels per day from its July monthly report. The agency noted that high oil prices will continue to suppress consumption, though demand is expected to gradually recover and return to growth in the fourth quarter of the year. The situation in the Strait of Hormuz remains unclear, with both the US and Iran publicly stating their demands without reaching a deal to open the vital waterway. In its Wednesday report, the IEA said "renewed escalation of conflict and disruption to maritime shipping" is hindering the growth of global oil supply. Global oil supply in July was still down by 6.3 million barrels per day year-on-year. A series of attacks on vessels in the Red Sea and the Gulf of Oman have further fueled supply concerns, keeping Brent crude oil prices oscillating around the $90 mark.

Market Reactions and Consumer Impact

Oil prices have been highly volatile. The international benchmark Brent crude briefly broke above $100 per barrel last month and also dipped close to $70, before recently trading just below $90 per barrel. When the Strait was first blocked in March, markets feared a global crisis from oil shortages, but that worst-case scenario has not materialized. Key reasons include a sharp decline in Chinese oil imports, shipping companies using alternative routes, and countries drawing on their oil reserves. This week's data showed that US crude oil inventories have fallen below 300 million barrels, the lowest level in over forty years. Any sign of a potential navigation agreement quickly calms price gains, limiting the upside for crude oil. However, analysts warn that this situation is unsustainable. Refining capacity is under severe strain, directly driving up prices for refined products like gasoline and diesel, putting cost pressure on ordinary consumers. Since the conflict with Iran began in February, the International Monetary Fund (IMF) has cut its global annual economic growth forecast from 3.3% to 3%. IMF Managing Director Kristalina Georgieva stated earlier this year, "All current trends point to higher prices and slower economic growth."