In recent developments within the energy sector, the International Energy Agency (IEA) has forecasted a considerable shift in the global oil market dynamics. The agency’s projections indicate that the world is on the brink of experiencing a substantial surplus in oil supply juxtaposed against a backdrop of diminishing demand growth. This imbalance is anticipated to manifest itself in a staggering accumulation of nearly 3 million barrels per day by the year 2026.
This prediction marks a significant adjustment in the agency’s outlook since the beginning of the year, with the IEA having reduced its forecast for demand growth in 2025 by 350,000 barrels per day (bpd) as of January. This recalibration is attributed to a noticeable retardation in oil consumption across both developed and emerging markets.
Contrasting sharply with the IEA’s evaluations are the projections offered by OPEC, which envisage a considerably more robust trajectory for demand growth. OPEC’s forecasts are nearly twice those of the IEA, envisioning a scenario where stronger economic activities in principal oil-consuming regions underpin a tighter supply owing to lesser production from rival producers. This divergence of perspectives underscores a pronounced discrepancy in market forecasts between these two influential entities.
The IEA has been adjusting its outlook for global oil demand growth downwards in six out of eight monthly oil reports published this year, signalling a persistently bearish stance on the evolution of demand. The latest issuance reaffirms the expectation of a burgeoning surplus in the oil market, subsequent to the peak of the summer season, attributed to a conjunction of escalating supply and faltering demand growth.
In a surprising turn of events, the group known as OPEC+ has committed to accelerating the reversal of a prior agreement to cut oil production by 2.2 million bpd, expected to be fully unwound by the end of September. This policy change is set against the backdrop of the IEA’s anticipation of demand growth being markedly weaker than initially forecasted in early 2025, while the supply side is predicted to escalate considerably.
The narrative of a burgeoning glut in the oil market is bolstered by various factors including the gradual increase in both OPEC+ and non-OPEC+ supply, coupled with anemic demand growth that falls short of prior expectations. Presently, the global demand for oil is projected to ascend by merely 680,000 bpd this year, followed by a modest uptick of 700,000 bpd in 2026. This revised forecast represents a further downgrade from previous estimates, signaling a continuous pattern of recalibrating expectations downward.
Amidst this forecast of bloated oil market balances, certain geopolitical developments, such as sanctions on Iran and Russia, present constraints on supply from these notable oil producers. However, even these factors have not alleviated the looming spectre of a supply glut as the anticipated surplus in supply overwhelmingly outpaces demand projections for the upcoming year and into 2026.
In terms of supply dynamics, it is noteworthy that non-OPEC+ producers are expected to be the primary drivers of supply growth, augmented by significant contributions from the US, Canada, Brazil, and Guyana. This is in stark contrast to the prevailing narrative which has often positioned OPEC+ as the primary influencer of global oil supply trends.
Given this context, the overall stability of oil prices, despite the undercurrents of a swelling supply and tepid demand, is somewhat surprising. The resilience of oil prices can, in part, be attributed to lower than average stock levels at key pricing hubs and robust refinery operations over the summer period which have absorbed some of the burgeoning supply.
Summarily, the IEA’s projections cast a shadow of an impending record supply glut, poised to eclipse even the inventory build-up witnessed during the peak of the pandemic in 2020. This scenario is corroborated by the U.S. Energy Information Administration (EIA), which also anticipates a significant accumulation of global oil inventories late this year and into early 2026.
Amidst this bearish outlook by the IEA, OPEC maintains a bullish stance, underpinning its forecasts on an expectation of stronger economic recovery and consequently higher demand. This juxtaposed viewpoint not only highlights the uncertainty pervading the oil markets but also underscores the intricate balance of geopolitical, economic, and environmental factors that continue to shape the global energy landscape.
