Global Oil Demand Faces Steep Decline as IEA Warns of Tightening Supplies

October WTI crude oil (CLV26) closed down -2.43 (-2.37%) on Friday, while October RBOB gasoline (RBV26) fell -0.0860 (-2.53%).

WTI prices retreated Friday after surging 6.7% Thursday to a 3.5-month high. The International Energy Agency (IEA) cautioned that elevated oil prices and constrained supply would trigger the largest demand contraction since the Covid-19 pandemic. Despite the bearish demand outlook, the IEA raised its global oil deficit forecast to 1.7 million bpd, up from 1.3 million bpd last month, citing supply disruptions tied to the US-Iran conflict. The agency now expects a global surplus to return no earlier than 2027, pushing back its prior late-2026 estimate.

Two vessels were reportedly struck by unidentified projectiles near Oman on Thursday, believed to be Iranian fire. Iran has signaled readiness for escalated counterstrikes if US attacks on its territory continue, keeping Middle East supply risks front and center.

Yemen’s Houthi rebels have targeted Saudi energy facilities, forcing production halts. Saudi crude output dropped to 6.238 million bpd in August—the lowest since 1990. The Houthis also seized the strategic Red Sea port of Mokha, just 50 miles from the Bab al-Mandab Strait, strengthening their ability to disrupt shipping. With the Strait of Hormuz effectively closed, Saudi Arabia has leaned on Red Sea routes, but Houthi aggression over the past two months has hampered that pivot.

Vitol Group highlighted tightening global markets, pointing to roughly 2 million bpd lost from Middle East crude exports and another 2 million bpd curtailed from Russian output due to Ukrainian drone strikes. Bloomberg, Kpler, and Vortexa data show Saudi August crude exports fell to around 3 million bpd—the lowest in nine years.

Israel’s potential deeper involvement in the US-Iran conflict adds further support. Defense Minister Katz stated that an Iranian attack on Israel would lift restrictions on Israeli retaliation. Israel has intensified strikes on Hezbollah in Lebanon and Hamas in Gaza, while the Houthis continue Red Sea operations—dampening hopes for a swift de-escalation and Hormuz reopening.

Ukraine’s escalated drone campaign against Russian oil infrastructure has cut crude processing to 3.51 million bpd in July—the lowest in 24 years—according to EA Analytics. Russian crude production dropped to 8.89 million bpd in July, a six-year low per OPEC secondary sources. Russia’s gasoline output also plunged to roughly 80,000 tons daily in August, just 70% of domestic demand, sparking nationwide shortages.

On the supply side, OPEC approved a final +188,000 bpd increase for September, fully restoring the 1.65 million bpd cut enacted in 2023 and pledging to hold output steady thereafter. However, ongoing US-Iran hostilities could complicate delivery. OPEC’s August production slipped 900,000 bpd to 19.91 million bpd.

Vortexa reported that crude sitting on anchored tankers for seven or more days dropped 16% week-over-week to 92.64 million bbl as of September 4.

The Thursday EIA report leaned bearish: crude inventories drew 391,000 bbl versus 1.35 million bbl expected; gasoline stocks rose 1.27 million bbl against a 1.25 million bbl draw forecast; distillates gained 2.09 million bbl versus a 700,000 bbl expected decline. US crude production hit a record 13.947 million bpd, up 0.6% week-over-week. Cushing inventories, the WTI delivery hub, fell 684,000 bbl.

As of September 4, US crude stocks sat 0.1% above the five-year seasonal average, gasoline was 5.5% below, and distillates were 14.0% below. Crude production rose 0.6% week-over-week to the record 13.947 million bpd.

Baker Hughes reported US active oil rigs rose by one to 450 in the week ended September 11, still modestly below the 1.25-year high of 455 rigs set the week of August 14.

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