Guotai Haitong Securities noted in a research report that international oil prices trended upward for the most part in August, with escalating geopolitical disruptions and continued global inventory drawdowns. The firm expects supply forecasts for Q4 to be further revised downward, with geopolitical risks and low inventory levels providing support for oil prices. However, the negative feedback loop from elevated prices on demand is gradually becoming more evident.

The three major agencies remain divided on demand projections, with the IEA and EIA forecasting a decline in 2026 demand while OPEC expects continued growth. Oil prices are likely to remain firm within a fluctuating range, and the firm recommends companies operating in the upstream sector, along with those poised to benefit from substitution routes.

Oil Price Outlook: Geopolitical volatility and repeated delays in Strait reopening, coupled with sustained inventory drawdowns, make price declines difficult while gains remain likely—keeping prices in a range with both upper and lower limits

This dynamic of being harder to push down but easier to lift is driven by several factors: (1) Geopolitical tensions remain fluid, with the reopening timeline for the Strait being postponed multiple times, leaving crude inventories at low levels across multiple global regions; (2) Shipping through the Bab el-Mandeb Strait remains impacted, and attacks on Saudi Arabia’s East-West pipeline have cut into Middle East export volumes; (3) Earlier buffer measures are showing signs of change, including the nearing end of IEA stock releases, restoration of sanctions on Russia, and increased crude imports by China.

On the upside, price ceilings are constrained by: (1) The peak season for refined product demand is coming to a close; (2) With midterm elections approaching, the likelihood of heightened geopolitical confrontation is low; (3) Deteriorating refining margins in Asia could slow procurement activity.

Supply Side: Q3 forecasts show divergence, while Q4 supply projections are revised downward

For 2026, global crude oil supply is projected at 100.7 and 100.6 million barrels per day by the IEA and EIA, respectively, representing year-on-year changes of -5.7 and -5.62 million barrels per day. Compared to last month’s forecast, these figures have been adjusted by -1.3 and -0.2 million barrels per day. Looking ahead to 2027, the IEA and EIA project global supply at 108.7 and 109.88 million barrels per day, with year-on-year changes of -1.6 and +0.1 million barrels per day.

For Q3 and Q4 2026, the IEA and EIA project global crude supply at 100.9, 101.7 and 100.3, 102.2 million barrels per day, respectively, with month-over-month adjustments of -0.4, -4.9 and +0.6, -1.5 million barrels per day. Q3 forecasts diverge, as the EIA modestly raised its near-term supply forecast while the IEA lowered its projection due to Middle East supply disruptions. For Q4, both agencies revised supply down owing to ongoing export constraints in the Middle East and delayed supply recovery in the Gulf region.

Demand Side: The three major agencies diverge on demand expectations, with the IEA and EIA projecting a 2026 demand decline while OPEC sees continued growth

According to IEA, EIA, and OPEC projections, 2026 global oil demand is set at 102.45, 102.59, and 105.7 million barrels per day, respectively, with year-on-year changes of -1.98, -1.37, and +0.69 million barrels per day. Compared to last month’s forecast, these are adjustments of -0.85, -0.14, and -0.05 million barrels per day.

For Q1 through Q4 2026, the IEA, EIA, and OPEC project average global oil demand at 104.53, 100.76, 104.01, and 105.19 million barrels per day, representing month-over-month adjustments of 0.13, -0.15, -0.26, and -0.94 million barrels per day, respectively. Due to elevated prices, demand destruction is evident in Q2, though the negative feedback effect is gradually slowing with time.

Inventory Side: Continued drawdown expected through 2026, with Q4 supply-demand balance tightening notably

The IEA and EIA expect the global oil supply picture to remain tight throughout 2026, with full-year supply-demand balances of -1.7 and -1.9 million barrels per day, respectively, representing adjustments of -0.42 and -0.03 million barrels per day, indicating a widening of the inventory drawdown. For Q3 and Q4 2026, the global supply-demand balances are projected at -1.6, -2.2 million barrels per day and -2.93, -1.66 million barrels per day, respectively. The IEA has modestly raised its Q3 supply-demand gap from the prior period, suggesting a marginal loosening, while both agencies have significantly lowered Q4 projections, reflecting a more pronounced tightening outlook for year-end supply-demand dynamics.

Risk Warnings

Sharp fluctuations in crude oil prices; changes in OPEC+ production policies; faster-than-expected output growth from non-OPEC+ producers; a slowdown in global economic growth and declining oil demand; and shifts in geopolitical conditions.