Oil Market Report - July 2026

• A recovery in world oil demand is underway, with consumption set to rise from its May nadir on seasonal trends and as pent-up demand is released in line with a rebound in product supplies. Annual contractions ease from 4.8 mb/d in 2Q26 to 1.7 mb/d in 3Q26, followed by a rise of 1.2 mb/d in 4Q26, for an overall decline of 1 mb/d this year. Forecast growth of 2 mb/d in 2027 results in a two-year pace of expansion well below historical trends.

• Global oil supply rebounded by a sharp 4.1 mb/d to 98.8 mb/d in June, as a resumption of flows through the Strait of Hormuz underpinned a partial recovery in Gulf production. World output was nevertheless some 9.4 mb/d below pre-war levels, with supply on track to decline by an average of 3.7 mb/d to 102.6 mb/d in 2026, contingent on a swift de-escalation of renewed hostilities. If transit volumes improve, oil supply will expand by 7.5 mb/d next year.

• Refined product cracks and margins surged to four-year highs in early July, as increased crude supplies pushed oil prices sharply lower, while product markets remained tight. Global refinery runs rose by 1.5 mb/d in June, down 6 mb/d y-o-y, with Middle East export refineries yet to restart, Russian throughputs curtailed by attacks and Asia still running at reduced rates. Global runs are expected to decline by 2.4 mb/d this year and rebound by 3.1 mb/d in 2027.

• Global observed oil inventories rose for the first time in four months in June, by 21 mb, as sharply higher oil on water volumes more than offset continued draws in onshore tanks. Following a decline of 73 mb in May, total OECD stocks fell by a further 62 mb in June, of which an estimated 44 mb came from government stock releases. Non-OECD crude stocks eased by 37 mb in June, led by a 41 mb draw in China.

• Benchmark crude oil prices continued to spiral lower in June, erasing all of their wartime gains, as tanker traffic out of the Gulf picked up and market focus shifted to the prospect of oversupply. North Sea Dated crude plunged by $22/bbl m-o-m, to around $68/bbl, with prompt time spreads reverting to contango. Prices rose after the ceasefire agreement was breached on 7-8 July, with Dated trading around $77/bbl at the time of writing.

Benchmark crude oil prices continued their downward slide in June, as the interim ceasefire agreement between the United States and Iran underpinned a strong recovery in oil flows through the Strait of Hormuz. North Sea Dated prices plunged by $31/bbl over the course of the month to $68/bbl by early July, their lowest since January and $2/bbl below pre-war levels. An escalation in hostilities on 7-8 July, however, clouds the outlook and could upend the forecast that sees the market flipping to a surplus next year. The North Sea marker was last trading at $77/bbl.

With the United States temporarily lifting restrictions on Iranian exports and providing security support for non-Iranian shipments, tankers stuck in the Strait rushed to exit. Total Gulf oil exports, including volumes bypassing the Strait, surged by 6.5 mb/d in June, to 16.1 mb/d – a big jump but still well below the 24 mb/d average before the war started. Crude and condensates accounted for 85% of the monthly increase, helped by a drawdown of floating storage and onshore inventories that had been filled to the brim. As a result, Gulf production rose by a more modest – but still significant – 3.5 mb/d, putting it 11.4 mb/d below pre-war levels.

As an armada of tankers set sail for refining hubs further afield, global observed oil inventories in June rose for the first time since the outbreak of the war. Oil on water swelled by 117 mb, far outpacing continued drawdowns in onshore stocks of some 96 mb, including 44 mb of OECD government reserves.

But while a wave of crude oil hit the market, refinery activity and product supplies have been much slower to respond. Gulf exports of refined products and LPG in June remained less than half their pre-war levels, compared with crude flows that reached nearly three-quarters of their February rates. Loadings from key export refineries in the Gulf have yet to resume, suggesting operations remain constrained. Against this backdrop, intensifying Ukrainian attacks on Russian refineries and export infrastructure have further tightened product markets in Russia and beyond, with exports and domestic fuel deliveries both significantly impacted.

At the same time, a recovery in global oil demand from a low of 97.9 mb/d in May (a decline of 5.3 mb/d year-on-year) is underway. By October, we expect global demand to be up by more than 8 mb/d from the May low point, putting it above 2025 levels for the first time since February. The upswing in fuel use during the peak summer travel season is set to get an additional boost from the release of pent-up demand. Even so, global oil demand is projected to decline by 1 mb/d this year before rebounding by 2 mb/d in 2027.

The disconnect between apparently well supplied crude oil markets and tight product markets underpinned a rally in cracks and refinery margins to four-year highs by early July. While concerns over jet fuel shortages have eased in recent weeks after refiners pushed output to new highs, diesel and gasoline markets have tightened, with gasoline cracks moving sharply higher.

While the global oil market balance looks set to swing back to surplus towards the end of the year, the forecast hinges on the assumption that tanker flows through the Strait will gradually recover, allowing producers to restart fields and refiners in the Middle East and elsewhere to resume product shipments. Renewed exchanges of fire in the Gulf this week highlight the risks of not reaching a lasting peace agreement, which is a must for the normalisation in oil markets.