The tightening comes despite weaker global demand caused by high fuel prices. According to the IEA’s August 2026 Oil Market Report, continued restrictions around the Strait of Hormuz and the Bab el-Mandeb Strait have forced the agency to lower its supply estimates for the rest of the year, even as it expects the oil market to move back toward surplus later in 2026.
Supply Losses Widen as Regional Shipping Remains Disrupted
The IEA now expects global oil supply to fall by 4.3 million barrels a day in 2026, bringing total output to 102 million barrels a day. Growth of 1.4 million barrels a day from producers in the Americas is expected to offset only part of the losses recorded in the Middle East and Russia.
Oil prices reflected the instability during July. Benchmark crude rose to two-month highs after the breakdown of the Iran-US ceasefire reversed part of the earlier recovery in Gulf supplies. Prices moved through what the IEA described as an “unusually wide range,” fluctuating between roughly $105 and $70 a barrel as diplomatic developments repeatedly changed expectations about the conflict.
According to Bloomberg’s report on the agency’s findings, oil markets face a shortfall of 1.8 million barrels a day as renewed hostilities and maritime disruptions limit the production recovery. For 2026 as a whole, the deficit is expected to be the widest in five years.
The disruption has been partly moderated by alternative export routes. Saudi Arabia and the United Arab Emirates have used pipelines that bypass the Strait of Hormuz, while shuttle tankers have continued moving some crude through the waterway. US Energy Secretary Chris Wright said Tuesday that about 9 million barrels a day had passed through during the previous week, roughly half the level recorded before the conflict.
Falling Demand Has Not Stopped Inventories From Tightening
High oil and fuel prices are also weakening consumption. The IEA has deepened its estimate for the decline in global oil demand this year by almost 50%, forecasting a drop of 1.6 million barrels a day. Bloomberg reported that this would represent the largest annual average decline since the Covid-19 pandemic in 2020.
The pressure is visible in fuel markets as well. Renewed attacks on shipping and regional energy infrastructure have raised the cost of gasoline and diesel, adding pressure on consumers even while lower demand limits some of the strain on the market.
Oxford Economics has raised its oil price forecast following the renewed US-Iran hostilities. According to the firm, average prices are expected to remain near $85 a barrel for the rest of 2026 before gradually declining to around $65 by the end of 2027.
Ben May, Oxford Economics’ director of global macro research, said a lasting agreement over the Strait of Hormuz remains unlikely in the near term because of distrust between Washington and Tehran. He said traffic through the strait is expected to fluctuate through at least 2028 while remaining, on average, below pre-conflict levels.
The IEA expects inventories to begin rebuilding once the market returns to surplus. It also said member countries including the United States, Japan and Germany will need to replenish emergency reserves after the record stock release announced in March.
