The International Energy Agency (IEA) has released a report forecasting a significant oil surplus by 2026. This is due to slowing global demand growth and ongoing increases in supply.
IEA's Oil Surplus Forecast
In a report released from Paris, the IEA estimated that oil inventories will build up by 2.96 million barrels per day next year, exceeding the average stockpile rate seen during the peak of the COVID-19 crash in 2020. Demand is projected to grow at less than half the pace it did in 2023, while production continues to rise as OPEC+ countries resume paused production alongside increasing outputs from the U.S., Canada, Guyana, and Brazil.
Current Oil Prices and Their Impact
So far this year, crude prices have dropped by 12%, currently trading around $66 per barrel. This decline is occurring as both OPEC+ and non-OPEC+ producers flood the market, compounded by fears over an economic slowdown due to the trade war. Strong summer driving season has helped oil demand, but the IEA reports that the market is already showing signs of oversupply, with global inventories hitting their highest level in nearly four years in June.
OPEC+'s Challenges Amid Oversupply
It remains unclear what OPEC+ plans to do next. The group has not committed to a clear direction, and may either boost production again, pause, or cut back. The IEA noted that output from the full 22-nation coalition eased slightly last month, although some countries, like the United Arab Emirates, pushed their production to record levels. Given the weak demand in China, India, and Brazil, producers are facing heightened pressure.
According to IEA forecasts, despite short-term demand increases, long-term trends indicate stable or declining oil consumption growth. This presents challenges for producers who are reliant on a rebound in oil demand.
