The warning signal has been issued by the International Energy Agency about the state of the world market in oil, with projections of an unusual level of oil surplus in the market that would possibly change the face of oil economics in the world completely. The latest projections have indicated an oversupply level of 4 million barrels per day by the year 2026, which is practically 4% of total requirements in the world market.
World market: Supply growth continues to outpace demand growth
The world’s total crude supply is projected to rise to 3.0 million barrels per day in 2025; here, there’s an increase from the earlier projection of 2.7 million barrels per day. This expansion will continue with additional supplies of 2.4 million barrels per day in 2026. The OPEC+ countries are presently cutting back on the agreed volume of voluntary supply reductions in 2023. Eight of these countries will strengthen supply to 1.4 million barrels per day in the current year and to 1.2 million barrels per day in 2026.
The current supply glut is further aided by the Non-OPEC+ countries, with the majority of the increased supplies being chipped in by the United States, Brazil, Canada, Guyana, and Argentina. The improved efficiency of the Brazil majors and the U.S. shale segment’s sustainability have beaten the estimates, adding to the pressures in an already heavily oversupplied market, as the growth in demand is just not able to keep pace with the supply deluge.
The slow growth of demand can’t keep up with increasing supplies
September experienced a staggering increase of 102 million barrels in tankerborne exports, the highest since the onset of the COVID-19 pandemic. The growth can be linked to the rising production in the ME in line with the low demands for power in the major regions during the maintenance period. The IEA had forecasted an average increase of 700,000 barrels per day in 2025, and this has been maintained in 2026. The figure is quite discouraging. The average increase for the third quarter in 2025 was 750,000, which failed to meet the expected targets.
The level of demand represents structural shifts in consumption patterns rather than cycle-related market considerations. Economic challenges in major consumption centers and the acceleration of new energy transition policies imply that historical market models related to demand growth are no longer relevant. As structural shifts in demand continue to intensify, the effect of supply growth has become even more disproportionate to normal market precedents.
China has accumulated substantial inventories, which have absorbed considerable volumes in the current year, with current crude inventories being 30% higher than in 2019. However, it should be noted that the current stockbuilding driven by new Energy Laws represents one-off demand growth and not consumption growth in the context of current world demand weakness.
Market rebalancing mechanisms are challenged as never before
The importance of the anticipated surplus is a problem for the traditional market rebalancing tools. The inelastic nature of demand in the oil market implies that massive reductions in prices are required to generate demand growth, with an expected reduction of 10% in prices equating to only 0.3% demand growth.
Rebalancing factors:
- Reversals/Postponement of OPEC+ production cuts
- U.S. responses to lower prices in shale production
- Effect of Sanctions on Iran, Venezuela, and Russia
- Re-establishing opportunities for the petroleum reserve
The record level of expected oil surplus in 2026 spells a tipping point in the global energy market: though market mechanisms would correct it in the end, it can cause big swings in prices and shifts in market structures in the process. On one hand, there are opportunities in terms of supplementing the reserve and improving energy security, and on the other hand, that breaks the structure of the oil market and its price mechanism, as it has occurred for so many years.
