As oil market surplus keeps rising, something has got to give

Recently, supplies from the Middle East and the Americas have surged, leading the amount of oil that is being transported or stored on the water to its highest level since the Covid-19 pandemic. Meanwhile, demand is set to remain tepid in 2025 and 2026, increasing by about 700,000 barrels per day in both years.

These trends point to an untenable surplus of nearly 4 million barrels per day in 2026 – making it increasingly clear that something in markets must give, as IEA’s Toril Bosoni, Head of our Oil Industry and Markets Division, wrote in a commentary that accompanied the market report. The announcement last week of new sanctions on major Russian oil companies adds further complexity to the situation.

Global oil supply in September was up by a massive 5.6 mb/d compared with a year ago. OPEC+ accounted for 3.1 mb/d of the increase, as the Group of 8 unwound 2 mb/d of production cuts, and as Libya, Venezuela and Nigeria all posted strong gains. Based on their latest agreement, OPEC+ is now on track to lift output by 1.4 mb/d on average this year and by a further 1.2 mb/d in 2026. Non-OPEC+ producers are set to add 1.6 mb/d and 1.2 mb/d, respectively, over the same timeframe, with the United States, Brazil, Canada, Guyana and Argentina leading growth. Risks to the forecast remain, with sanctions imposed on Russia and Iran compounding geopolitical concerns. Persistent attacks on Russian energy infrastructure have cut Russian crude processing by an estimated 500 kb/d, resulting in domestic fuel shortages and lower product exports. The drop in Russian middle distillate exports reverberated globally as regular buyers scrambled to secure alternative supplies, bidding up diesel and jet fuel cracks in the process. Light sweet crude refining margins hit two-year highs in Europe and 18-month highs on the US Gulf Coast and in Singapore in September.

As for global oil demand, the third quarter of 2025 saw growth rebound to 750 kb/d y-o-y from the second quarter’s 420 kb/d pace, when consumption was weighed down by tariff turmoil, especially for LPG/ethane feedstocks that posted a rare contraction. Third-quarter gains are largely in line with our annual growth forecast of around 700 kb/d in both 2025 and 2026. Despite recent sluggish growth, the petrochemical sector will reassume its position in the driving seat of oil demand growth, as subpar economic conditions, increasing vehicle efficiencies and strong EV sales make for strong headwinds for road transport fuels.

Amid the backdrop of slower demand growth and a rapid increase in crude supplies, global oil balances have seen a 1.9 mb/d surplus since the start of the year, yet crude prices have fluctuated around $70/bbl so far in 2025. That range has been kept in check in part because NGLs dominated the overhang from April through August. Indeed, outside of China, the crude market tightened over the same period. Looking ahead, as the significant volumes of crude oil on water move onshore to major oil hubs, crude stocks look set to surge while NGLs start to drop. However, the loss of Russian product supplies, upcoming EU restrictions on product imports derived from Russian feedstocks, and recent refinery capacity closures may keep the product markets tighter than the overall balance would suggest.

Source: IEA