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The International Energy Agency (IEA) has revised its medium-term oil outlook, projecting a slightly tighter market in 2026 than previously anticipated, as stronger demand collides with a softer pace of supply growth.
In its latest monthly report, the Paris-based agency lifted its global oil demand forecasts for both 2025 and 2026, while cutting its estimates for future supply increases. The result is still a sizeable surplus in 2026, but one that is narrower than the IEA had projected just a month earlier.
Demand: Modest Upgrade on Improving Macro Backdrop
The IEA now expects world oil demand to rise by 830,000 barrels per day (b/d) in 2025, supported by an improving macroeconomic and trade environment.
For 2026, the agency raised its forecast by 90,000 b/d, and now sees demand growing 860,000 b/d year-on-year.
Recent strength in U.S. gas liquids consumption has helped lift the outlook, although this has been partially offset by:
- Persistent weakness in Europe, and
- Faster substitution away from oil in power generation in the Middle East.
The forecast underscores a picture of continued but moderate demand growth, rather than a strong cyclical upswing.
Supply: Growth Still Outpaces Demand, but by Less
On the supply side, the IEA lowered its projections for production growth:
- 2025 global oil supply growth is now seen at 3.0 million b/d, down 100,000 b/d from the previous forecast, putting total supply at 106.2 million b/d.
- 2026 supply growth was trimmed by 20,000 b/d to 2.4 million b/d, taking total output to 108.6 million b/d.
Despite the downward revisions, supply is still expected to outpace demand. The IEA now projects world oil supplies to exceed demand by 3.815 million b/d in 2026. That would mark a record surplus, but is 231,000 b/d lower than the oversupply estimated in last month’s report.
The updated figures suggest a structurally looser market by 2026, but with somewhat reduced risk of an extreme glut.
November: OPEC+, Sanctions and Export Flows
In the nearer term, global supply actually contracted:
- Global oil supply fell by 610,000 b/d in November,
- OPEC+ accounted for more than three-quarters of that decline,
- The drop was led by sanctions-hit Russia and Venezuela.
Russia’s total oil exports fell by around 400,000 b/d to 6.9 million b/d in November, as buyers reassessed legal and financial risks under tighter sanctions enforcement, the IEA said.
The combination of voluntary OPEC+ restraint and sanctions-related disruptions continues to limit downside pressure on prices in the short run, even as the medium-term balance points to oversupply.
Inventories at Four-Year Highs
Global observed stocks have been rebuilding:
- Inventories climbed to a four-year high in October,
- Preliminary data indicate a further increase in November,
- The build-up is driven largely by higher non-OECD on-land crude stocks.
Rising inventories highlight that the market is currently oversupplied at prevailing price levels, reinforcing the IEA’s view of a comfortable supply cushion heading into the medium term.
Market Implications
For oil markets and investors, the IEA update sends a mixed but generally softer signal:
- Short term: OPEC+ policy, sanctions and geopolitics can still create bouts of tightness and price spikes.
- Medium to long term (towards 2026): The outlook remains bearish-leaning, with supply growth and high inventories pointing to a structurally looser market, even after the modest tightening in forecasts.
The revised projections are likely to:
- Cap upside for long-dated crude prices,
- Keep focus on OPEC+ strategy and sanctions enforcement, and
- Increase scrutiny of high-cost producers and leveraged exploration and production companies as the market moves toward a surplus-heavy 2026.
