New Delhi, April 14: Global crude oil demand is projected to witness its steepest quarterly decline since the Covid-19 pandemic, as escalating geopolitical tensions and supply disruptions reshape energy markets, the International Energy Agency (IEA) said in its latest report.
The agency has forecast a contraction in oil demand by 80,000 barrels per day in 2026, attributing the decline to ongoing conflict conditions that have disrupted supply chains and altered global consumption patterns. It noted that demand in the second quarter is expected to fall by 1.5 million barrels per day, marking the sharpest drop since the pandemic period.
The report highlighted that the initial reduction in oil consumption has been concentrated in the Middle East and Asia Pacific regions, particularly affecting demand for products such as naphtha, liquefied petroleum gas, and jet fuel. The agency warned that the decline is likely to spread further as supply shortages and elevated prices continue to exert pressure on markets.
Global crude processing levels have also been impacted, with refineries facing constraints due to limited feedstock availability and damage to infrastructure. These disruptions have contributed to tightening product markets and heightened volatility.
Oil prices surged sharply in March, registering the largest monthly increase on record following what the report described as the most severe supply shock in history. Spot crude benchmarks rose significantly, surpassing futures markets, as refiners sought alternatives to disrupted Middle Eastern shipments.
Although a brief two-week ceasefire provided temporary relief, uncertainty remains over the continuity of shipping through the Strait of Hormuz, a key transit route for global oil supplies. The agency identified the resumption of flows through this corridor as a critical factor in stabilising energy markets and easing price pressures.
In response to constrained supply, oil-importing countries have turned to alternative sources, intensifying competition for limited available barrels. Physical crude prices have surged to levels near $150 per barrel, significantly exceeding futures prices, indicating a widening gap between spot and derivative markets.
Refined product prices have also risen sharply, with middle distillates in Singapore reaching record highs above $290 per barrel. The report noted that the imbalance between supply and demand is being reflected more strongly in physical markets.
The situation has been further complicated by developments such as the United States announcing a blockade on vessels linked to Iranian ports, adding to existing trade disruptions and supply uncertainties.
To mitigate immediate shortages, both consumers and refiners have drawn on existing oil inventories. However, global stock levels declined by 85 million barrels in March, driven largely by reduced maritime shipments from Gulf producers reliant on the Strait of Hormuz. Importing nations in Asia recorded a drop of 31 million barrels in crude stocks, with further reductions anticipated.
The IEA stated that while its projections assume a partial resumption of oil and gas supplies from the Middle East by mid-2026, levels are not expected to return to pre-conflict volumes. It also noted that the outlook remains uncertain, with the possibility of continued volatility depending on geopolitical developments.
The report underscores mounting challenges in balancing supply and demand in global energy markets, with implications for prices, trade flows, and economic stability.
