Strait of Hormuz Disruptions Drain Global Oil Inventories, IEA Warns

The International Energy Agency has again cut its outlook for global oil supply and demand as renewed fighting around the Strait of Hormuz disrupts Gulf exports, drains inventories and pushes fuel markets into an increasingly precarious position.

In its August Oil Market Report, published Wednesday, the IEA said Gulf oil production increased by another 2.5 million barrels per day in July to 23.9 million bpd, extending a recovery that began in June. Production, however, remained 8.3 million bpd below pre-war levels.

Regional exports, including shipments moving through routes that bypass the Strait of Hormuz, fell by 2.1 million bpd in July to an average 15 million bpd. Loadings briefly reached 20 million bpd at the beginning of the month before dropping to around 12 million bpd later in July as the Strait was effectively closed again and oil infrastructure and tankers came under attack.

The figures highlight the continuing disconnect between recovering Gulf production and the region's ability to move barrels to international buyers as the conflict disrupts one of the world's most important energy corridors.

Benchmark crude prices reflected that uncertainty, trading in a nearly $40-per-barrel range during July. Prices surged as high as $105 per barrel on July 23 following the breakdown of the mid-June Iran-U.S. ceasefire agreement. North Sea Dated ended July at $96.80 per barrel and was trading around $92 when the IEA prepared its report.

With no agreement yet restoring reliable passage through Hormuz or unhindered transit through the Bab el-Mandeb Strait, the IEA lowered its oil supply estimates for the remainder of the year.

Global oil supply increased by 2.4 million bpd in July to 101.5 million bpd, but remained 6.3 million bpd below year-ago levels. Renewed hostilities and maritime disruptions prompted the agency to cut its third-quarter supply estimate by 1.7 million bpd compared with its July report.

For 2026 as a whole, global supply is now forecast to decline by 4.3 million bpd to about 102 million bpd, with growth from the Americas only partly offsetting losses from the Middle East and Russia. Supply is expected to rebound by 8.3 million bpd next year to 110.3 million bpd.

Saudi Arabia remains particularly constrained. The IEA's OPEC+ table shows Saudi production at 8.24 million bpd in July, up from 7.34 million bpd in June but more than 2 million bpd below its implied July target. Iraq and Kuwait were also producing well below implied targets.

The disruption is increasingly affecting the demand side of the market as well.

The IEA cut its forecast for global oil demand in the second half of 2026 by roughly 550,000 bpd from last month's report, citing the continued closure of Hormuz, disruptions to international supply chains, reduced product availability and elevated fuel prices.

Global oil demand is now expected to decline by 1.6 million bpd this year, a contraction 510,000 bpd larger than forecast a month ago. Demand fell sharply during the second quarter and is expected to contract by another 2.8 million bpd in the third quarter before returning to modest growth in the final three months of the year.

The effects are particularly acute in refined products. Global refinery crude throughputs rose by 1.8 million bpd in July but remained nearly 5 million bpd below year-earlier levels. Seaborne product trade was down 3.8 million bpd year-on-year, while diesel exports from Russia, the Middle East and Asia fell by 1.3 million bpd — equivalent to roughly 20% of global seaborne diesel trade. Jet fuel exports from those regions were down around 670,000 bpd, or 34% of global trade.

The shortages have pushed Atlantic Basin refining margins to record highs, with diesel, jet fuel and gasoline cracks surging amid tighter supplies and depleted inventories.

Perhaps the clearest warning in the IEA report concerns the world's shrinking inventory buffer.

Global observed oil inventories plunged by 69 million barrels in July, largely due to a sharp reduction in oil held on the water. By the end of the month, observed inventories had fallen below 7.9 billion barrels for the first time since April 2025.

Since the start of the war, inventories have declined by a cumulative 410 million barrels, equivalent to an average draw of about 2.7 million bpd.

The IEA now expects the global oil balance to run a deficit of 1.8 million bpd during the third quarter, more than double the roughly 800,000 bpd deficit projected just a month ago.

While the agency expects the market to move back toward surplus late this year, it warned that risks remain substantial as the inventories that helped cushion the initial shock from the conflict are rapidly being depleted.

That is putting greater pressure on efforts to restore shipping through Hormuz.

"The urgency of reopening the Strait has increased, as previously available inventory buffers are rapidly depleting," the IEA said.