The global oil market is facing a deepening supply squeeze, with diesel prices surging and oil inventories falling sharply as disruptions in the Middle East and Russia continue to restrict crude and refined-product flows.
The International Energy Agency (IEA), in its September 2026 Oil Market Report, said global oil demand is now forecast to decline by 2.5 million barrels per day (mb/d) in 2026. The agency revised its forecast down by 940,000 barrels per day from last month’s report, citing the continuing impasse in negotiations between the United States and Iran and the delayed normalisation of oil flows.
Demand is expected to recover by 2.6 mb/d in 2027, narrowly offsetting this year’s losses.
Diesel market comes under pressure
The tightening is most acute in refined products, particularly diesel and gasoil, which account for nearly 30% of global oil demand.
The IEA said US diesel prices surpassed $200 per barrel in early September, representing a 94% increase from pre-war levels, while prices in Europe and Asia also rose sharply.
Benchmark crude prices have also climbed. North Sea Dated crude averaged $91 per barrel in August, up $7.61 from July, before surging to $113.48 per barrel on September 9.
ICE Brent futures stood at about $105 per barrel at the time of the report, up $21 since the start of August and 45% above pre-war levels.
However, the IEA said the increase in refined-product prices has significantly outpaced the rise in crude prices, reflecting growing shortages of diesel and other petroleum products.
Middle East, Russia disruptions cut fuel supplies
The agency estimates that total oil exports from Gulf countries averaged about 13 mb/d in August, nearly half their pre-war level.
While crude losses have narrowed to just below 45%, supported by flows bypassing the Strait of Hormuz and US military escorts, refined-product and LPG exports remained almost 60%, or 3.7 mb/d, below February levels.
Diesel/gasoil exports have been particularly affected. Net exports from Gulf countries averaged only 390,000 barrels per day in August, just over a quarter of pre-war levels.
Disruptions to Russia’s refining system have compounded the shortages following intensified Ukrainian attacks and a near-halt to Russian product exports.
Together, diesel/gasoil exports from the Gulf and Russia were 1.6 mb/d lower in August than in February. The two regions had accounted for almost 45% of global seaborne diesel trade in February.
Other refining centres have partly offset the losses by increasing refinery runs to capture higher margins.
Global oil supply falls
Global oil production fell by 1.6 mb/d month-on-month to 100.1 mb/d in August, as more than 10 mb/d of Gulf production remained shut in amid heightened security risks.
The IEA now expects global oil supply to average 100.7 mb/d in 2026, a decline of 5.7 mb/d from 2025 and 1.3 mb/d below its previous forecast.
The agency said the expected recovery in Middle East production has been pushed into 2027, when global production is projected to rebound by 8 mb/d.
Outside OPEC+, production growth is expected to be led by the Americas Quintet, which is forecast to add 1.4 mb/d in 2026 and another 1 mb/d in 2027.
Inventories face further drawdown
Global oil inventories are also coming under increasing pressure.
The IEA said observed inventories fell by another 95 million barrels in August, taking cumulative draws since February to 507 million barrels, equivalent to an average withdrawal of 2.8 mb/d.
Oil held on water declined by 65 million barrels as tanker traffic out of the Middle East came under renewed attacks.
Non-OECD inventories fell by 52 million barrels, led by China, while OECD stocks increased by 23 million barrels. However, the OECD build was more than offset by a 19-million-barrel decline in government-held stocks.
The agency warned that inventories have played a critical role in balancing the market but that these buffers are now shrinking.
Refining system stretched
Global refinery throughput reached a summer peak of 81.4 mb/d in August, up 960,000 barrels per day from July but still 4.2 mb/d below the same period last year.
The IEA expects global refinery runs to decline by 2.6 mb/d to 81.5 mb/d in 2026, with losses concentrated across the Middle East, Russia and crude-importing economies in Asia.
Refining margins in the Atlantic Basin reached record levels in August, driven largely by sharply higher diesel margins. In contrast, rising freight costs weighed on refinery profitability in Singapore.
The IEA said the combination of shrinking inventories, constrained supplies and a refining system operating close to its limits increases the risk of further market tightening.
It said progress in resolving the conflicts disrupting oil flows in the Middle East and the Russia-Ukraine war is increasingly important to prevent further supply constraints and demand destruction.