The International Energy Agency (IEA) May Oil Market Report (OMR) says global oil markets are facing sharp disruptions in 2026, driven by the Middle East conflict and restricted flows through the Strait of Hormuz.

World oil demand is forecast to contract by 420 kb/d year-on-year in 2026 to 104 mb/d, with the steepest decline in the second quarter.

The OECD and non-OECD regions are both expected to see significant reductions, driven mainly by weaker petrochemical and aviation activity, higher prices, and softer economic conditions.

On the supply side, global oil output fell sharply, with April production down by 1.8 mb/d to 95.1 mb/d, bringing total losses since February to 12.8 mb/d.

Gulf production has been heavily impacted by disruptions, while Atlantic Basin output has increased to partially offset shortages.

Assuming partial reopening of the Strait from June, global supply is projected to fall by 3.9 mb/d on average in 2026.

Refinery activity is also under pressure, with crude throughput expected to drop by 4.5 mb/d in the second quarter and by 1.6 mb/d for the full year due to supply constraints and infrastructure disruptions.

Despite lower runs, refining margins remain elevated due to strong middle distillate demand and shifting trade flows.

Inventories have fallen rapidly, with global stocks declining by 129 million barrels in March and 117 million in April, as supply disruptions continue to drain onshore and floating storage.

Oil prices have been highly volatile, with North Sea Dated swinging within a wide range in April and averaging around $120 per barrel amid supply shocks and geopolitical uncertainty.

The report notes that despite some demand destruction and higher output from outside the Middle East, the market remains tight and is expected to stay in deficit until late 2026, with further volatility likely as inventory draws continue. -OGN/ TradeArabia News Service