New Delhi, April 14 : The International Energy Agency (IEA) warned on Tuesday that demand for crude oil will likely see the biggest slump in the second quarter (Q2 2026) since the Covid pandemic slashed fuel consumption.

Oil demand is expected to contract by 80,000 barrels per day (kb/d) this year, "as the Iran war upends our global outlook".

"This is 730 kb/d less than in last monthâ??s Report and a forecast 1.5 mb/d 2Q26 decline would be the sharpest since Covid-19 slashed fuel consumption. Initially, the deepest cuts in oil use have come in the Middle East and Asia Pacific, mainly for naphtha, LPG, and jet fuel. However, demand destruction will spread as scarcity and higher prices persist," the agency said in its report.

Global crude throughputs continue to struggle with disruptions to feedstock supplies and infrastructure damage that are tightening global product markets.

Oil prices posted their largest-ever monthly gain in March in the wake of the most severe oil supply shock in history.

Spot crude benchmarks and differentials soared, outpacing futures markets, as refiners anxiously scrambled to replace locked-in Middle Eastern cargoes, said the report.

The IEA said that the two-week ceasefire provided some welcome respite to global oil markets just as the impact of disruptions to supply and trade was spreading globally.

"However, at the time of writing, it remains unclear whether the ceasefire will turn into a lasting peace and a return to regular shipping flows through the Strait of Hormuz," said the report.

With oil-importing nations scrambling to source replacement barrels from an increasingly shrinking pool of supply, physical crude oil prices surged to record levels near $150/bbl, far above the prices in futures markets, with the physical-futures disconnect becoming increasingly acute.

Even steeper gains have been seen for refined products, with middle distillate prices in Singapore reaching all-time highs above $290/bbl.

The IEA said that resuming flows through the Strait of Hormuz remains the single most important variable in easing the pressure on energy supplies, prices and the global economy.

The latest development in the fast-evolving situation is the announced US blockade on vessels entering or departing Iranian ports and coastal areas.

Consumers and refiners alike are tapping into oil inventories to mitigate the immediate impact of supply disruptions.

In March, global observed oil stocks fell by 85 mb despite an accumulation of both on-land and offshore inventories in the Middle East and further builds in China.

The largest decline came from oil on water following the near halt to sailings from Gulf producers dependent on the Strait. Crude oil stocks in importing countries in Asia dropped by 31 mb, with further declines expected in April.

â??The prospects for a lasting negotiated settlement to the conflict remain unclear at this stage. We present a forecast that assumes a resumption of regular deliveries of oil and gas from the Middle East to international markets by mid-year, although not back to pre-conflict levels,â?? said the report.

/IANS