IEA: Mounting supply losses rapidly depleting inventories
Mounting supply losses are rapidly depleting inventories while volatility across crude and refined product markets continues to intensify, the International Energy Agency (IEA) said in its May 2026 Oil Market Report.
Global oil demand is now forecast to contract by 420,000 b/d year-over-year in 2026 to 104 million b/d, according to IEA, a downward revision of 1.3 million b/d from the agency’s pre-conflict forecast. The steepest decline is expected in second-quarter 2026, when demand falls by 2.45 million b/d year-over-year, including declines of 930,000 b/d in OECD countries and 1.5 million b/d in non-OECD economies.
Petrochemical feedstocks and aviation demand have been hit hardest by the disruption. LPG/ethane and naphtha account for roughly half of the 2026 demand downgrade from pre-conflict levels, while jet fuel and kerosene demand weakened sharply as airlines reduced flights in response to higher fuel costs and disruptions across Gulf aviation hubs.
Global oil supply declined by another 1.8 million b/d in April to 95.1 million b/d, bringing total losses since February to 12.8 million b/d, according to IEA. Output from Gulf countries affected by the closure of the Strait of Hormuz remained 14.4 million b/d below pre-war levels. Higher production and exports from Atlantic Basin suppliers provided partial relief to the market. Assuming flows through the strait gradually resume beginning in June, global oil supply is forecast to decline by 3.9 million b/d on average in 2026 to 102.2 million b/d.
Global refinery crude throughputs are expected to plunge by 4.5 million b/d in second-quarter 2026 to 78.7 million b/d and decline by 1.6 million b/d to 82.3 million b/d for the full year as refiners contend with infrastructure damage, export restrictions, and lower feedstock availability. Despite lower refinery runs, refining margins remained at historically high levels, supported by record middle distillate crack spreads.
Meantime, disruptions in Middle Eastern LPG exports have sharply tightened global propane and butane markets. Gulf countries shipped nearly 1.5 million b/d of LPG through the Strait of Hormuz during 2025, but those flows slowed to just 270,000 b/d in April, according to Kpler data. Even with higher exports from Saudi Arabia’s Yanbu terminal and increased shipments from other exporters, the market still faces an estimated shortfall of 1 million b/d.
The US accounted for the largest increase in alternative LPG supply. According to Kpler data, US LPG exports surged by 450,000 b/d from 2025 averages to 2.7 million b/d, representing 69% of total global seaborne LPG supply.
Observed global oil inventories fell by 129 million bbl in March and another 117 million bbl in April. Continued disruptions to seaborne trade through the Strait of Hormuz contributed to a 170 million bbl decline in on-land inventories during April, while oil on water increased by 53 million bbl. OECD on-land inventories fell by 146 million bbl during the month.