Global oil demand is set to decline in 2026 for the first time since the peak of the COVID-19 pandemic in 2020, according to a report from the International Energy Agency. The IEA expects the drop to be about 1 million barrels per day. And here is the part that matters for anyone budgeting, forecasting, or underwriting costs: even as crude demand cools and oil prices slide, gasoline, diesel, and other refined products can stay stubbornly expensive.

In May, global oil demand averaged 97.9 million barrels per day, down 5.3 million barrels per day from a year earlier. Much of the decline was in Asia, which relies heavily on Middle East crude. China alone fell by 1.5 million barrels per day, a 9% drop, the largest globally. But the U.S. was the main exception to the global slump: gasoline use increased in the second quarter of 2026, even though pump prices were about 50% above their prewar levels in May.

So why does the refined-products bill not follow the oil-demand headline? Start with the supply shock. The report points to disruptions to physical supply that weighed on various parts of the world, but unevenly. Those disruptions were tied to the war between the U.S. and Iran, which left ships loaded with crude stranded in the Persian Gulf for more than three months. The ships were unable to safely travel through the Strait of Hormuz, a major route for oil and gas shipments.

The strait situation is not simply “back to normal,” according to Jim Burkhard, vice president and head of crude oil research at S&P Global Energy. Burkhard said Iran is still trying to control the strait, while the U.S. has not been able to fully restore normal operations, making a return to prewar conditions unlikely. In other words, the world can see crude moving again, but the market is still operating with friction. That friction shapes timing, location, and who can actually turn crude into products.

Then layer in demand management, especially from China. One reason oil prices were not as high as they might have been is that China massively cut purchasing oil from the global market as prices rose during the spring, reducing consumption by almost 6 million barrels per day, Burkhard said. In Burkhard's account, China was essentially able to say: prices are high, there is a crisis, we have huge inventory stock, so we can sustain demand. And instead of absorbing the higher prices through higher imports, China cut by about 50% the amount of crude oil it buys.

China also used strategic reserve tactics to smooth the impact. Daniel Sternoff, senior fellow at the Center on Global Energy Policy at Columbia University, said China temporarily stopped filling its strategic petroleum reserve, which had been added to at nearly 1 million barrels per day. Sternoff also tied the crisis to faster fuel conservation on the road as electric vehicle use grew. He noted that the tracking so far suggests China could be on track to see demand losses of somewhere between 500,000 and 600,000 barrels per day worth of demand for gasoline and diesel. That is a meaningful drag on refined-product demand even when the headline feels like “oil prices down.”

Now bring this back to the “why are gas and diesel still costly” question. The report argues that while a fragile ceasefire enabled some ships to exit the Strait of Hormuz in June, allowing more oil on the market and contributing to lower oil prices, prices did not spike after renewed tension between the U.S. and Iran earlier this month. Burkhard characterized the current U.S.-Iran situation as a gray-zone conflict that is not really a shock to the oil market. It may push prices up and down a few dollars, he said, but it is not the same type of shock as the early March moment when Iran did what many thought was unthinkable.

Two more mechanics keep the refined-products side elevated. First, there were fewer buyers available to scoop up the supply that became available. Second, there was less ability to convert crude into finished products on short notice. Burkhard said several refineries in Russia were unable to process crude after being damaged in drone hits from Ukraine, and refineries in the Middle East remained damaged from the war. That combination means you can get “gushes of supply of crude oil” into the market, but you do not necessarily get matching increases in demand for that crude or matching increases in refining throughput.

Burkhard’s framing is blunt: gasoline, diesel and other refined products have stayed inflated longer than oil prices. This is the market mismatch executives need to understand, because it affects everything downstream. If crude softens but refined products remain costly, then transportation, industrial feedstocks, and even consumer pricing pressures can persist, even while the upstream story looks better.

In the U.S., the refined-products story also has a human behavior layer. Gasoline prices surpassed $4.50 on average for a gallon of regular in May, according to AAA data, rising more than 50% since the start of the war. Yet gasoline consumption rose in the U.S. during the second quarter of the year. Sternoff suggested one reason is that the percentage of household income spent on gasoline in the U.S. has been declining for years. He also pointed to the shift from remote work back to in-office jobs. As he put it, even if higher prices are a political focus, people in higher income quintiles are not necessarily driving less just because pump prices are up.

For boards, CFOs, and strategy teams, the second-order takeaway is that “oil demand down” does not automatically translate into cheaper energy inputs, especially when refining capacity is impaired and when large buyers are actively managing inventories and purchase volumes. The IEA report is a reminder that energy markets are really three markets in one: crude availability, refining ability, and final product demand. In 2026, those pieces are moving out of sync.