ANZ: Oil Demand Recovery Depends on Flow Normalisation - FJElite

Global oil demand is now expected to contract by 1.5mb/d in 2026, after a sharper-than-expected downturn in Q2, when year-on-year declines may reach 4mb/d. Demand losses should ease in the second half of the year as supply improves and some delayed consumption returns, but the speed of that recovery depends heavily on how quickly physical crude and product flows can get back to pre-war levels. Transit times matter, with Persian Gulf shipments to Asia taking two to four weeks and flows to Europe and the Atlantic Basin taking even longer, which means lower oil prices do not translate into immediate relief for end users and the demand rebound comes with a lag.

The recovery is also not purely cyclical. The broader macro backdrop remains supportive overall, even if growth is uneven across the US, China, and Europe, and in 2027 oil demand is expected to recover by 2mb/d as flows normalise, fuel prices ease, and growth firms. Asia and the Middle East are expected to lead that rebound, helped by stronger jet fuel and petrochemical demand, while gasoline and diesel demand returns more gradually. Even so, part of the lost demand will not come back because of structural changes such as rising EV penetration. The key point is that demand destruction has been one of the main offsets to the market’s historic supply shock, and its recovery will matter just as much for oil prices as the eventual return of Middle East supply.