A PL Capital report states a 4.8 mbpd global oil deficit from West Asia disruptions will be absorbed by demand destruction. This rebalancing is expected to put downward pressure on crude prices, potentially improving margins for Indian oil marketing companies.
A supply deficit of around 4.8 million barrels per day (mbpd) in the global oil market is expected to be absorbed through demand destruction amid ongoing disruptions in West Asia, according to a report by PL Capital.
Quantifying the Supply Gap
The report said the conflict in West Asia has tightened global oil supply, leading to higher prices and increased volatility. The disruption of crude flows through the Strait of Hormuz has resulted in a supply loss of nearly 15 mbpd. However, part of this loss has been offset by strategic releases of about 400 million barrels (mb) by the International Energy Agency (IEA) and the use of alternative export routes bypassing Hormuz, which account for around 6.2 mbpd. Despite these measures, a gap of about 4.8 mbpd remains in the market.
It stated, "Supply deficit of 4.8mbpd needs to be compensated.... Against a supply balance of ~4.8mbpd, such expected demand destruction will partially rebalance market dynamics further, putting a downward pressure on crude prices".
Demand Destruction as a Rebalancing Force
The report noted that this imbalance is expected to be addressed through demand destruction as higher oil prices begin to weigh on consumption globally. Early signs of demand slowdown are already visible. The IEA expects global oil demand to contract by around 1.5 mbpd in the second quarter of 2026, with a sharper decline of about 2.3 mbpd in April 2026, compared to industry estimates of around 4.0 mbpd.
The demand slowdown is initially expected to be concentrated in the Middle East and Asia-Pacific regions. However, as supply tightness continues and prices remain elevated, the demand destruction is likely to spread across other regions as well. The report added that governments in oil-consuming countries may introduce policy measures or mandates to curb consumption, which could further contribute to rebalancing the market over time.
Impact on Prices and OMCs
The report said that as demand destruction continues and helps rebalance the market, it could eventually put downward pressure on crude prices. In this context, PL Capital said it remains positive on oil marketing companies (OMCs) such as Indian Oil Corporation Limited, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited. It noted that a decline in crude prices driven by demand destruction is expected to improve marketing margins for these companies, although this could be partly offset by softer fuel demand volumes. (ANI)
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