Global oil markets are experiencing a severe supply deficit in 2026, driven by the prolonged closure of the Strait of Hormuz and ongoing geopolitical tensions in the Middle East. The International Energy Agency (IEA) reported in its August 2026 Oil Market Report that world oil demand is forecast to decline by 1.6 million barrels per day (mb/d) this year, while global supply is projected to fall by 4.3 mb/d, creating a significant market imbalance.

Supply Disruptions And Production Cuts

Global oil supply reached 101.5 mb/d in July 2026, rising 2.4 mb/d from the previous month but remaining 6.3 mb/d below year-ago levels. Approximately 8.3 mb/d of Gulf production capacity remains shut due to the ongoing conflict and maritime disruptions. The IEA noted that renewed hostilities in July and early August reduced projected third-quarter 2026 oil supply by 1.7 mb/d compared to the previous month's estimate.

OPEC+ production data shows significant compliance gaps, with the alliance producing 6.02 mb/d below its November 2022 target levels as of July 2026. Saudi Arabia produced 8.24 mb/d in July, operating 2.11 mb/d below its implied target, while Iraq produced 2.88 mb/d, falling 1.5 mb/d short of its target. Russia's output stood at 8.76 mb/d, approximately 1.06 mb/d below its target allocation.

Demand Contraction And Inventory Draws

Global oil demand is expected to contract by 4.9 mb/d in the second quarter of 2026 and 2.8 mb/d in the third quarter before returning to modest growth of 580,000 barrels per day in the final quarter. The IEA revised its 2026 demand forecast downward by 510,000 barrels per day compared to the previous month, citing elevated fuel prices and supply chain disruptions.

Global observed oil inventories plunged by 69 million barrels in July 2026, with total stocks falling below 7.9 billion barrels for the first time since April 2025. Cumulative stock draws between late February and end-July reached 410 million barrels, averaging 2.7 mb/d. The IEA warned that previously available inventory buffers are rapidly depleting, increasing market vulnerability to further supply shocks.

Price Volatility And Refining Margins

Benchmark crude oil prices traded in an exceptionally wide range of nearly $40 per barrel in July 2026, with North Sea Dated crude rising $25.67 per barrel over the month to close at $96.80 per barrel. Prices spiked as high as $105 per barrel on July 23 following the breakdown of the mid-June Iran-US ceasefire agreement, before settling around $92 per barrel by mid-August.

Refinery crude throughputs increased to 80.9 mb/d in July but remained nearly 5 mb/d below year-earlier levels. Atlantic Basin refining margins reached record highs as diesel, jet fuel, and gasoline cracks surged amid supply shortfalls and depleted stocks. The global oil balance is now expected to show a deficit of 1.8 mb/d in the third quarter of 2026, more than double the previous month's estimate of 800,000 barrels per day.