Global refined products demand forecast to drop sharply

Refined product markets have crossed a critical threshold where a historic supply disruption is evolving into an outright demand crisis, according to a new analysis by S&P Global Energy

Markets are now facing a severe demand reckoning that will likely last through the summer travel season, and possibly longer.

“Given the lags between any potential restart of flows through the Strait of Hormuz and the arrival of meaningful relief to product supply, the market equation cannot be solved without demand acting as the balancer,” stated Daniel Evans, vice president and global head of fuels and refining research at S&P Global Energy.

S&P Global Energy now expects global refinery runs to decline 5.2mn bpd and 2.7mn bpd year over year in the second and third quarters, respectively. On an annual average basis, global crude runs are now expected to decline by 1.9mn bpd.

The magnitude of losses in refinery runs are expected to be largely mirrored in refined product demand reductions, with year-over-year declines of 4.4mn bpd and 2.2mn bpd in the second and third quarters, respectively. That constitutes a decline of 1.8mn bpd in 2026, on an annual average basis.

The effective closure of the Strait of Hormuz is most likely to continue through May before a gradual return of oil flows. The demand decline in the second quarter is more than twice that experienced during the weakest quarter of the ‘Great Recession’ of 2008/2009. The Hormuz crisis is now a prolonged event with lasting physical consequences. Even if flows restarted immediately, operational and logistical delays would postpone meaningful relief to product markets by months rather than weeks.

“What matters now is the ‘call on demand curtailment’ — the volume of consumption that must disappear given fixed supply constraints and limited inventory draw capacity,” asserted Karim Fawaz, executive director of fuels and refining at S&P Global Energy.

The bulk of refinery run cuts outside of the Middle East are expected to come from Asia and to a lesser extent Europe, where exposure to disrupted flows is greatest and competition for replacement barrels is most intense. As refinery runs fall, so will refined product supply, creating pressure in both refining regions and those dependent on imports.

For the time being, North American, Latin American and African refineries are relatively better positioned and remain well insulated from the crude supply crisis. However, the burden of demand losses may spread across markets that have so far weathered the crisis unless the geopolitical tension eases.