World oil market to see higher surplus after OPEC+ hike, IEA says

World oil supply is expected to grow more rapidly this year, with a surplus potentially expanding in 2026 as OPEC+ members increase output and production from non-OPEC countries rises, according to the International Energy Agency (IEA). This contrasts with OPEC's revised outlook.

The IEA's latest monthly report forecasts supply will increase by 2.7 million barrels per day (bpd) in 2025, up from the previous estimate of 2.5 million bpd, and by a further 2.1 million bpd in 2026. OPEC+ is adding more crude to the market after the Organization of the Petroleum Exporting Countries, Russia, and other allies decided to unwind its second layer of output cuts more quickly than initially planned. This additional supply has raised concerns about a potential surplus and has exerted downward pressure on oil prices this year.

According to the IEA, supply is growing far faster than demand, although it has revised its forecast for global demand growth this year to 740,000 bpd, up by 60,000 bpd from its previous prediction, citing robust deliveries in advanced economies. The IEA's report also highlights the conflicting pressures on oil markets, with potential supply losses from new sanctions on Russia and Iran counterbalanced by increased OPEC+ supply and the prospect of an oversupplied market.

The IEA's demand projections are on the lower end of the industry spectrum, as it anticipates a faster transition to renewable energy compared to other forecasts, such as OPEC's.

Meanwhile, OPEC has maintained its forecast for a 1.29 million bpd increase in demand this year, nearly double the IEA's estimate, and it expects the global economy to perform well into the second half of 2025. This positive outlook follows OPEC+’s decision on Sunday to further raise oil output quotas from October, with Saudi Arabia leading the push to regain market share.

Oil prices dropped on Thursday, with Brent crude trading just below $67 per barrel, still up from a low of around $58 in April.

Divergence in Outlook

The IEA's report suggests the world oil market is becoming oversupplied, with global inventories projected to rise by an "untenable" 2.5 million bpd on average in the second half of 2025. Next year, the IEA expects supply to exceed demand by approximately 3.3 million bpd, with growth driven by OPEC+ and non-OPEC producers such as the U.S., Canada, Brazil, and Guyana, while demand growth remains limited. In contrast, OPEC forecasts a slower increase in supply from outside OPEC+ of 630,000 bpd next year. Analysts suggest that the fall in oil prices this year, partly due to OPEC+ output hikes, has put pressure on the economics of U.S. shale production.

Instead of the IEA's implied surplus for 2026, OPEC's report suggests a deficit of 700,000 bpd if OPEC+ continues output at the August rate of 42.4 million bpd, according to a Reuters calculation.

The IEA also noted that China continues to build its crude stockpiles, which is helping to keep Brent crude prices for immediate delivery higher than those for later contracts – a market condition known as backwardation, indicating a tight supply. The IEA stated that its forecasted surplus may not materialise, with several factors, including geopolitical tensions, trade policies, and further sanctions on Russia and Iran, potentially altering market balances.

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