The International Energy Agency (IEA) warns that global oil markets face a mounting risk of oversupply as record production growth outpaces demand through 2026. In its latest monthly report, the IEA projects that world oil output will climb far faster than consumption, creating an “untenable” surplus and exerting downward pressure on prices.
Demand Growth Remains Muted
The IEA report released today indicated that global oil demand is forecast to increase by 740,000 barrels per day (bpd) in 2025, up slightly from last month’s estimate, as resilient deliveries in advanced economies offset weaker consumption in emerging markets.
OECD demand grew 80,000 bpd in the first half of 2025 but is expected to flatten or contract later this year, leaving annual use broadly flat. The IEA maintains its outlook for about 700,000 bpd demand growth in both 2025 and 2026, underscoring the impact of energy efficiency gains and the shift to renewables.
Record Supply from OPEC+ and Non-OPEC Producers
Global oil supply reached an all-time high of 106.9 million bpd in August, driven by OPEC+ unwinding its second tranche of output cuts and non-OPEC producers operating near capacity, Reuters news report said.
The IEA now expects production to rise by 2.7 million bpd to 105.8 million bpd in 2025, and by a further 2.1 million bpd to 107.9 million bpd in 2026.
Non-OPEC+ countries, including the United States, Brazil, Canada, Guyana, and Argentina, will account for 1.4 million bpd of growth in 2025 and just over 1 million bpd next year.
OPEC+ plans to lift its output target by 137,000 bpd in October, though actual gains may fall short as key members like Iraq, UAE, and Russia already produce near their limits.
Refinery Activity and Inventories
Refinery crude throughputs surged to a record 85.1 million bpd in August but are projected to drop by 3.5 million bpd through October because of seasonal maintenance. Global runs are forecast to average 83.5 million bpd in 2025 and 84 million bpd in 2026, with refining margins supported by strong gasoline demand despite weaker diesel cracks.
Inventories continue to build:
Observed global oil stocks rose 26.5 million barrels in July, bringing cumulative gains since January to 187 million barrels, though levels remain 67 million barrels below the five-year average.
China’s crude stockpiles jumped 64 million barrels in 2025, absorbing part of the surplus.
The IEA warns that inventories could expand by an “untenable” 2.5 million bpd in the second half of 2025, with a potential surplus of about 3.3 million bpd in 2026.
Price Pressure and Geopolitical Wild Cards
Brent crude prices hovered near $67–68 per barrel in August and early September, slipping about $2/bbl month-on-month as the threat of oversupply outweighed geopolitical risks. Sanctions on Russia and Iran have had limited immediate impact, but the EU’s planned 2026 ban on Russian refined products could disrupt trade flows and tighten supply.
While the IEA highlights potential disruptors — including geopolitical tensions, trade policies, and new sanctions — the overarching trend is clear: global oil supply is growing far faster than demand, setting the stage for a multi-year glut that could challenge producers and weigh on prices as the world accelerates its transition to renewable energy.
Baburajan Kizhakedath