Global energy
Keypoints
- World oil demand is forecast to contract by 420 kb/d in 2026, dropping 1.3 mb/d below pre-war projections.
- Global oil supply fell by 1.8 mb/d in April to 95.1 mb/d, with cumulative losses since February totaling 12.8 mb/d.
- The closure of the Strait of Hormuz has shut in over 14 mb/d of Gulf production, creating a historic inventory drawdown.
- Global oil inventories were depleted by 250 mb across March and April, equivalent to a rate of 4 mb/d.
- North Sea Dated crude prices averaged $120.36/bbl in April, experiencing an unparalleled trading range of nearly $50/bbl.
Main Story
More than ten weeks after the war in the Middle East began, mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace.
The May 2026 edition of the IEA’s Oil Market Report highlights that global oil supply plummeted to 95.1 mb/d in April, taking total losses since the start of the conflict in February to 12.8 mb/d.
Output from Gulf countries remains 14.4 mb/d below pre-war levels. While higher production and exports from the Atlantic Basin, notably from the United States, Brazil, and Venezuela have provided some relief, the market remains in a deep deficit.
On the demand side, high prices and a weakening economic environment are forcing a contraction in consumption. Global oil demand is expected to decline by 2.4 mb/d year-on-year in the second quarter of 2026.
The petrochemical and aviation sectors are the hardest hit, with jet fuel prices nearly tripling after Middle Eastern exports were severed. Although Atlantic Basin crude exports have increased by 3.5 mb/d since February, the IEA warns that global inventories are drawing down at an unsustainable rate of 5.7 mb/d on-land.
Further price volatility is expected as the market remains in deficit until the final quarter of the year, pending a diplomatic resolution to reopen the Strait.
The Issues
- The shut-in of 14 mb/d of Gulf production represents the largest single supply shock in the history of the oil market, exceeding 1 billion barrels in cumulative losses.
- Refinery crude throughputs are forecast to plunge by 4.5 mb/d in 2Q26 as operators contend with infrastructure damage and feedstock shortages.
- Global on-land stocks dropped by 170 mb in April alone, leaving consuming countries increasingly vulnerable to prolonged disruptions during the peak summer demand period.
What’s Being Said
- “Mounting supply losses from the Strait of Hormuz are depleting global oil inventories at a record pace,” the IEA stated in the May 2026 report.
- “The petrochemical and aviation sectors are currently most affected, but higher prices, a weaker economic environment and demand-saving measures will increasingly impact fuel use,” the report noted.
- “Producers outside of the Middle East also pushed output higher and lifted exports to record levels in response to the crisis,” the IEA observed.
- “At the time of writing, the two countries remained at loggerheads over an accord to reopen the Strait and end the war,” the report added regarding the U.S. and Iran.
What’s Next
- Market participants are closely watching for an accord between the United States and Iran to reopen the Strait, which the IEA assumes could begin gradually in June 2026.
- Atlantic Basin producers are expected to continue pushing output higher, with 2026 supply growth from the Americas revised up to 1.5 mb/d.
- High price volatility is anticipated throughout the summer as global inventories continue to drop ahead of the peak demand period.
Bottom Line
The global energy market is grappling with a historic 14 mb/d supply loss that has triggered record-breaking stock draws and extreme price swings, leaving the world economy dependent on Atlantic Basin exports and potential diplomatic breakthroughs.
