Highlights

• Oil demand is expected to contract by 80 kb/d this year, as the Iran war upends our global outlook. This is 730 kb/d less than in last month’s Report and a forecast 1.5 mb/d 2Q26 decline would be the sharpest since Covid-19 slashed fuel consumption. Initially, the deepest cuts in oil use have come in the Middle East and Asia Pacific, mainly for naphtha, LPG and jet fuel. However, demand destruction will spread as scarcity and higher prices persist.
• Global oil supply plummeted by 10.1 mb/d to 97 mb/d in March, with continued attacks on energy infrastructure in the Middle East and ongoing restrictions to tanker movements through the Strait of Hormuz leading to the largest disruption in history. OPEC+ production fell 9.4 mb/d m-o-m to 42.4 mb/d while non-OPEC+ supply declined 770 kb/d m-o-m to 54.7 mb/d, as lower Qatari output offset gains in Brazil and the United States.
• Global crude throughputs continue to struggle with disruptions to feedstock supplies and infrastructure damage that are tightening global product markets. In April, Middle East and feedstock-constrained refineries in Asia have cut runs by around 6 mb/d, to 77.2 mb/d. Global crude runs are now expected to decline by 1 mb/d on average in 2026, to 82.9 mb/d. Refining margins temporarily surged as middle distillate cracks reached all-time highs.
• Global observed oil inventories fell by 85 mb in March, with stocks outside of the Middle East Gulf drawn down by a significant 205 mb (-6.6 mb/d) as flows through the Strait of Hormuz were choked off. At the same time, with limited outlets after the effective closure of the Strait, floating storage of crude and oil products in the Middle East rose by 100 mb and onshore crude stocks in the region were up by 20 mb. China added 40 mb of crude to tanks.
• Oil prices posted their largest-ever monthly gain in March in the wake of the most severe oil supply shock in history. Spot crude benchmarks and differentials soared, outpacing futures markets, as refiners anxiously scrambled to replace locked in Middle Eastern cargoes. At the time of writing, North Sea Dated crude was trading around $130/bbl – $60/bbl above pre-conflict levels.

Disruptions mount

The announcement last week of a two-week ceasefire in the conflict in the Middle East provided some welcome respite to global oil markets just as the impact of disruptions to supply and trade were spreading globally. However, at the time of writing, it remains unclear whether the ceasefire will turn into a lasting peace and a return to regular shipping flows through the Strait of Hormuz. With oil-importing nations scrambling to source replacement barrels from an increasingly shrinking pool of supply, physical crude oil prices surged to record levels near $150/bbl, far above the prices in futures markets, with the physical-futures disconnect becoming increasingly acute. Even steeper gains have been seen for refined products, with middle distillate prices in Singapore reaching all-time highs above $290/bbl.

Resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy. The latest development in the fast-evolving situation is the announced US blockade on vessels entering or departing Iranian ports and coastal areas, which was due to go into effect soon after the time of writing. In early April, shipments through the Strait remained severely restricted, with loadings of crude, natural gas liquids and refined products averaging around 3.8 mb/d, compared with more than 20 mb/d in February ahead of the crisis. Exports through alternative routes – most notably from the west coast of Saudi Arabia and Fujairah on the east coast of the UAE, as well as the ITP pipeline that runs from Iraq to Ceyhan in Türkiye – had increased to 7.2 mb/d from less than 4 mb/d before the war. The overall loss in oil exports exceeds 13 mb/d, with associated production curtailment and damage to energy infrastructure in the region resulting in cumulative supply losses of more than 360 mb in March and 440 mb projected for April.

Consumers and refiners alike are tapping into oil inventories to mitigate the immediate impact of supply disruptions. In March, global observed oil stocks fell by 85 mb despite an accumulation of both on-land and offshore inventories in the Middle East and further builds in China. The largest decline came from oil on water following the near halt to sailings from Gulf producers dependent on the Strait. Crude oil stocks in importing countries in Asia dropped by 31 mb, with further declines expected in April.

Where oil inventories could not bridge the gap, demand has taken a hit. Most notably, Asian petrochemical producers have curtailed operating rates as feedstock supply dried up. Households and businesses using LPG have also been impacted, while flight cancellations across the Middle East, parts of Asia and Europe have led to a sharp drop in jet fuel consumption. A growing number of countries have implemented policies to reduce demand, while others have put in place measures to shield consumers from the full impact of rising fuel prices. Overall, global oil demand is estimated to contract by 800 kb/d year-on-year in March and by 2.3 mb/d in April. Global oil demand is now projected to decline by 80 kb/d on average in 2026, compared to growth of 730 kb/d expected in last month’s Report.

The prospects for a lasting negotiated settlement to the conflict remain unclear at this stage. In this Report, we present a forecast that assumes a resumption of regular deliveries of oil and gas from the Middle East to international markets by mid-year, although not back to pre-conflict levels. We recognise that this scenario could prove too optimistic, considering the high degree of uncertainty over how the situation may develop. We also present an alternative case where risks to energy production and trade in the Middle East remain high due to a prolonged conflict (see Strait Down – Stocks Draw as the Loss of Hormuz Flows Tightens Balances). In this case, energy markets and economies around the world need to brace for significant disruptions in the months to come.
Source: IEA