The International Energy Agency cut forecasts for oil demand this year and warned consumption may decline further as the Iran war drags on and consumers adjust to lower supply. The Paris-based agency deepened its forecast for this year’s decline in global oil demand by 940,000 barrels a day, projecting a drop of 2.5 million barrels a day — the biggest loss since the 2020 Covid pandemic. The return of a supply surplus will now be delayed until 2027.

“Global oil inventories have been drawing at record rates,” the IEA said. “With supplies still constrained, and commercial inventory buffers rapidly depleting, further demand reductions may be required in the coming months to close the gap.”

The hit to 2026 oil demand looks set to be comparable to the four largest shocks of the last 60 years, with the biggest impact on middle distillates like diesel and petrochemical feedstocks in Asia. Brent crude surged past $100 a barrel this week for the first time since July, trading near $104 on Friday as fighting between Yemen-based Houthi militants and Saudi-backed forces intensified.

Still, the market is heading for a deeper supply shortfall than previously estimated because the war is having a bigger impact on oil flows than on consumption. The IEA now sees an average global oil deficit of about 1.7 million barrels a day this year, compared with 1.3 million in last month’s report. It lowered projections for global supply by 1.3 million barrels a day, to an annual loss of 5.7 million a day, pushing back recovery expectations into next year.