FXT Financial Focus (Asia-Pacific 09/14)IEA Cuts Oil Demand Forecast as Supply Tightens

The IEAs latest monthly report shows that pressure in the global oil market remains concentrated on supply and inventories. OPEC crude output fell by 1.56 million barrels per day in August to 19.56 million bpd, as lower supply from the Middle East and Russia further tightened availability. Meanwhile, global oil inventories are being depleted rapidly, reducing commercial buffers and leaving a notable near-term supply-demand gap.

The IEA further lowered its global oil demand forecast, cutting its 2026 estimate from 103.3 million to 102.4 million bpd. Demand is expected to fall by 2.5 million bpd this year, the largest annual decline since 2020. Global demand is projected to recover to around 105 million bpd in 2027, up 2.5%, although this forecast was also revised lower as high oil prices continue to weigh on consumption.

Despite weaker demand, the impact of reduced supply remains greater. The IEA expects the global oil market to face an average deficit of around 1.7 million bpd this year, up from its previous estimate of 1.3 million bpd, while a return to looser supply conditions may be delayed until 2027. The 2027 non-OPEC supply forecast was also lowered from 79.2 million to 79.0 million bpd, highlighting continued uncertainty over the pace of supply recovery.

Pressure is even more pronounced in middle distillates such as diesel. Combined diesel exports from the Middle East and Russia fell to around 520,000 bpd in August, nearly 75% lower year on year. With middle-distillate yields at OECD refineries already near their limits, global refinery runs may need to increase by another 1.5–2.0 million bpd to offset this years export shortfall, which will be difficult to achieve in the near term.

As winter approaches, seasonal restocking could tighten refined-product markets further. Diesel is widely used for winter heating in Europe, the northeastern US and Japan, while jet fuel demand is expected to remain firm in the fourth quarter. The IEA estimates demand could rise by nearly 1.2 million bpd between August and November, roughly twice the normal seasonal increase, as restocking previously delayed by high prices returns to the market.

Looking ahead, if supply recovery remains slow while winter restocking increases, diesel and jet fuel prices could face further upward pressure. Higher energy costs may also affect transportation, aviation, agriculture and manufacturing before feeding through to businesses and consumers. At the same time, persistently high prices could curb purchases, making weaker demand an important mechanism for restoring market balance.

From FXTs perspective, the oil market has not shifted clearly toward surplus despite the lower demand forecast. Falling inventories, limited refining capacity and tight refined-product supply remain key pressures. In the coming months, supply recovery and the pace of winter restocking will be crucial. If additional supply remains limited, energy costs could stay elevated and continue adding pressure to business activity and global inflation control.

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