War Destroying Supply, How About Demand?
Key Extract
Global oil demand is set to contract by roughly 1 million barrels per day in 2026, led by China. But supply is falling 3.7 million — and that gap is what puts a floor under the price.
We've been focusing on supply quite intensely recently, but that's only half the accurate picture. Today, let's flip the lens and look at demand.
Price is the intersection between supply relative to demand. If demand is falling faster than supply, then all those drained inventories and disciplined rig counts don't save you. Prices head down anyway.
So what's the picture now? The global demand picture is genuinely weak. The International Energy Agency expects global oil demand to shrink by about 1 million barrels per day in 2026. Not grow slower than we've been used to hearing in the news. Contract.
That typically coincides with recessions, or depressions. Side note: we may be in a recession, and economists just haven't declared it yet or historians haven't marked it as such in hindsight.
Back on point. The weakness is centered in Asia, and China is the epicenter. Chinese crude imports dropped 41% year-over-year in June, to their lowest level in nearly a decade. Japan, Korea, and India all pulled back hard too.
Part of that is a real economic slowdown, and part of it is China deliberately drawing down its own massive reserves instead of buying at war-inflated prices. Either way, demand is soft.
But what about relative to supply? Supply is falling even faster. That same IEA report has global supply dropping by about 3.7 million barrels per day in 2026, sitting more than 9 million barrels a day below pre-war levels.
| Category | 2026 change vs. 2025 (million b/d) |
|---|---|
| Global supply | -3.7 MMbpd |
| Global demand | -1.0 MMbpd |
That gap is what puts a floor under the price. The demand weakness is not enough to close the hole the supply side is digging.
There is an asymmetry of black swans. On the supply side, the Saudi/Houthi situation can blow out, or Russia/Ukraine refinery strikes can escalate further. On the demand side, there aren't events to the same degree that could take demand drastically lower, like 3-4 million barrels per day — not that we can see anyway.
With this asymmetry in place, we tend to think we have a bit of downside protection on oil prices. This is not a forecast, but the $75-$85 long-term range is a reasonable one to model with, pressure testing around the $65 range.
For our investors holding domestic US production, that's the environment you want: a floored price, a tight market, and tail risks pointing to higher oil prices.
Your Oil and Gas team, Mike Qu, on behalf of CrownForge Energy.