Almost 100% of oil market analysts see the market as oversupplied this year, just as it was oversupplied last year. The size of the supply overhang, however, matters. Led by the International Energy Agency, a lot of analysts predicted that the overhang at millions of barrels. Then the IEA had to revise its prediction—again. Because demand turned out to be stronger than expected.
In its latest Oil Market Report, released earlier this week, the International Energy Agency forecast global oil demand would expand by 930,000 barrels daily in 2026. That would be up from the growth of a modest 850,000 barrels daily (estimated) for 2025. The drivers for that stronger demand, per the IEA, were a global economic rebound “after last year’s tariff turmoil” and, of course, the oil price slide, driven by predictions of continued weak demand and continued supply growth.
Yet that supply growth did not really materialize as predicted. In fact, in December, global oil production actually declined by 350,000 barrels daily, according to the IEA. And it was not the first monthly decline. The agency noted that the December total, at 107.4 million barrels daily, was 1.6 million barrels daily lower than a record high booked for September. In other words, global oil production had been in decline over the last quarter of 2025. Even with that, the IEA believes global oil supply grew by 3 million barrels daily last year—but this year, growth would slow down while demand strengthens. Because this is what happens when prices are low.
Right now, oil benchmarks are about 16% lower than they were a year ago, the IEA noted in its report, adding that the decline reflects the buildup of global crude oil stocks. This happened at a rate of around 1.3 million barrels daily, for a total build of 470 million barrels over the course of 2025. As for demand, estimates vary. The World Bank said in November it expected demand to average between 103.8 million barrels daily and 104.5 million barrels daily. Data presented by Statista suggests last year’s global demand could reach 105.5 million barrels daily.
As things stand with production, for now, there is a comfortable supply cushion, even if the surplus is not as major as many may have believed. It is big enough to continue keeping a lid on prices—helped substantially by continued glut predictions—but as producers respond to those low prices, this supply cushion will begin to thin. The rate of that thinning is yet to become clear, but it is inevitable because the producers’ response to weak prices is inevitable as well.
Meanwhile, OPEC has been disputing the glut narrative spearheaded by the IEA for years now. The producer group has argued that even if there is a supply overhang, it is much more modest than the International Energy Agency makes it look, and the slide into a deficit is a much more realistic scenario than the IEA’s forecasts would suggest.
This week, Aramco’s chief executive, Amin Nasser, once again repeated the warning against oil supply complacency. “It (spare capacity) is at 2.5%, and we need a minimum of 3%. If OPEC+ further unwinds cuts, spare capacity will fall even further, and we will need to watch this very carefully,” Aramco’s top executive said at the WEF summit in Davos.
According to Nasser and to pretty much all other OPEC+ officials, the global oil market can and will return to balance smoothly as strong demand eats into any excess supply. But as Nasser and other petrostate officials have pointed out, it would be easy for that market to slip into undersupply unless the industry boosts production capacity to be able to respond to such a development.
Naturally, OPEC+ has a vested interest in a market with no surplus, but those who point that out often forget to mention that the IEA also has a vested interest in overstating the surplus and using it as evidence of weak demand driven lower by the energy transition. The latter caused annoyance in Washington, which earlier this year culminated in a warning, expressed by Energy Secretary Chris Wright, that the United States would suspend funding for the IEA unless it returned to reality-based forecasting. The IEA immediately U-turned and said in its World Energy Outlook 2025 that there was no peak oil or gas demand on the horizon.
That suggests the oil market forecaster that everyone else looks up to is not flawless, and therefore its forecasts are far from certain developments, just like OPEC+’s forecasts. The recent price spike following the suspension of production in Kazakhstan is the latest evidence that this comfortable supply cushion that the IEA likes to talk about can vanish quite abruptly and serve a nasty surprise to the oil world. There is no place for complacency in that world.
By Irina Slav for Oilprice.com
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