Oil Market Report - August 2026

• World oil demand is forecast to decline by 1.6 mb/d in 2026, 510 kb/d more than our estimate in last month’s Report, as the ongoing closure of the Strait of Hormuz and elevated fuel prices continue to weigh on oil consumption. Annual contractions will nevertheless ease from 4.9 mb/d in 2Q26 to 2.8 mb/d in 3Q26, before returning to growth in the final quarter. Global oil demand is projected to expand by 2.4 mb/d in 2027.

• Global oil supply rose by 2.4 mb/d to 101.5 mb/d in July, but remained 6.3 mb/d below year-ago levels, with 8.3 mb/d of Gulf output still shut in. Renewed hostilities and maritime disruptions in July and early August undermined the recovery efforts, reducing projected 3Q26 oil supply by 1.7 mb/d compared with last month’s Report. Global oil supply is now projected to decline by 4.3 mb/d on average in 2026 and rebound by 8.3 mb/d next year to 110.3 mb/d.

• Refinery crude throughputs increased further in July but remained nearly 5 mb/d below year earlier levels, at 80.9 mb/d. Continued Middle East product export disruptions and attacks on Russian refineries reduced 3Q26 runs estimates by a further 370 kb/d. Global throughputs are now forecast to decline by 2.5 mb/d on average in 2026 and rebound by 3.5 mb/d in 2027. Tighter light and middle distillate markets boosted cracks and margins in the Atlantic Basin to record highs.

• Global observed oil inventories plunged by 69 mb in July, as renewed disruptions to exports from the Gulf and the Caspian Sea resulted in sharply lower volumes of oil on water. Onshore stocks declined by a modest 6 mb, as the pace of IEA emergency stock releases slowed, and despite continued draws in Chinese crude oil stocks. At just below 7.9 billion barrels, total observed oil stocks were down by 410 mb since the start of the war, or by 2.7 mb/d on average.

• Benchmark crude oil prices traded in an exceptionally wide range of almost $40/bbl in July, intermittently led by geopolitical developments and tightening crude and product markets. In parallel, prompt differentials for WTI and Brent futures returned to backwardation. North Sea Dated rose by $25.67/bbl over July to end the month at $96.80/bbl and at the time of writing was trading around $92/bbl.

Benchmark crude prices surged to a two-month high in July as the recovery in oil supplies from the Gulf reversed course following the breakdown of the mid-June Iran-US ceasefire agreement. Oil prices traded in an unusually wide range of $40/bbl, driven by sudden diplomatic pivots on the conflict. Expectations of diplomatic progress had triggered steep price declines in June and early July, but a return to hostilities led prices to spike as high as $105/bbl on 23 July. At the time of writing, with uncertainty again pervasive, North Sea Dated was trading around $92/bbl. Product cracks and refining margins, meanwhile, have continued to rise in August, setting new records in Europe.

After an increase of 3.7 mb/d in June, Gulf oil production rose by a further 2.5 mb/d in July to 23.9 mb/d, still 8.3 mb/d below pre-war levels. Regional exports, including routes bypassing the Strait of Hormuz, fell by a sharp 2.1 mb/d to 15 mb/d after the key passageway was effectively closed again in early July and oil infrastructure and tankers came under attack. Loadings peaked at 20 mb/d at the start of July but dropped to around 12 mb/d later in the month. With an agreement enabling the reopening of Hormuz and unhindered transit through the Bab el-Mandeb Strait still elusive, we have again lowered supply estimates for the rest of the year. Global oil supply is now forecast to fall by 4.3 mb/d in 2026, to 102 mb/d, as growth of 1.4 mb/d from the Americas only partly offsets losses in the Middle East and Russia.

At the same time, our forecast for global oil demand in the second half of 2026 is reduced by roughly 550 kb/d versus last month’s Report, as the continued closure of the Strait of Hormuz disrupts international supply chains and curtails product availability. Elevated fuel prices are putting further downward pressure on oil use. Global oil demand is now expected to decline by an average of 1.6 mb/d this year. Demand is projected to contract by 4.9 mb/d in 2Q26 and 2.8 mb/d in 3Q26, before flipping to growth of 580 kb/d in 4Q26.

Increasingly tight product markets pushed Atlantic Basin refining margins to all-time highs in July as diesel, jet fuel and gasoline cracks surged amid seasonally higher demand, supply shortfalls and depleted stocks. Despite a monthly increase of 1.8 mb/d, global refinery crude throughputs in July remained nearly 5 mb/d below year-earlier levels, with capacity elsewhere in the system currently unable to offset product supply bottlenecks. Seaborne product trade fell in tandem, down 3.8 mb/d y-o-y, even as US exports rose by 700 kb/d. Diesel exports from Russia, the Middle East and Asia were 1.3 mb/d lower y-o-y, equivalent to about 20% of global seaborne trade. Jet fuel exports from these regions fell by around 670 kb/d y-o-y, equal to 34% of global trade.

The global oil balance is now expected to show a deficit of 1.8 mb/d in 3Q26, more than double the estimate of around 800 kb/d in last month’s Report. After some brief respite in June, global observed oil inventories plunged by 69 mb, or 2.2 mb/d, in July, dragged lower almost entirely by a drop in oil on water. By the end of July, observed stocks had fallen below 7.9 billion barrels for the first time since April 2025. Cumulative stock draws between the end of February and the end of July reached 410 mb, or 2.7 mb/d on average. Although the market is projected to return to surplus towards the end of this year, risks remain substantial and the urgency of reopening the Strait has increased, as previously available inventory buffers are rapidly depleting.