Concerns over a looming oil glut are easing as global demand proves more resilient than expected, while supply growth shows early signs of slowing.
Although most oil market analysts still classify the market as oversupplied, the scale of that surplus is now under closer scrutiny. Recent revisions by the International Energy Agency (IEA) suggest that the imbalance is far smaller than earlier projections, largely due to stronger consumption and weaker growth in production.
In its latest Oil Market Report, the IEA forecast global oil demand growth of 930,000 barrels per day in 2026, up from an estimated 850,000 barrels per day in 2025. The agency attributed the stronger outlook to a rebound in global economic activity following last year’s trade disruptions, as well as lower oil prices, which have stimulated consumption.
At the same time, supply growth has failed to match earlier expectations. According to the IEA, global oil production fell by about 350,000 barrels per day in December. This marked another monthly decline, bringing total output to roughly 107.4 million barrels per day. That level is around 1.6 million barrels per day below the record high reached in September 2025, indicating that production trended lower through the final quarter of the year.
While the agency estimates that global oil supply still rose by about 3 million barrels per day in 2025, it expects growth to slow in 2026 as low prices begin to weigh on producer margins. Historically, such price conditions tend to restrain investment and output growth, gradually tightening the market.
Prices, Stocks, and the Supply Cushion
Oil prices remain under pressure. Benchmark crude prices are about 16 percent lower than a year ago, reflecting a steady buildup in global inventories. The IEA estimates that oil stocks increased by roughly 1.3 million barrels per day throughout 2025, resulting in a cumulative build of around 470 million barrels.
Demand estimates, however, vary widely. The World Bank has projected average global demand between 103.8 million and 104.5 million barrels per day, while other datasets suggest consumption may have climbed as high as 105.5 million barrels per day last year.
Despite these differences, most analysts agree that the market currently has a supply cushion. However, that buffer appears less comfortable than earlier forecasts suggested. As producers react to weaker prices by slowing output growth, the surplus is likely to thin. The pace of that adjustment remains uncertain, but the direction is increasingly clear.
OPEC Pushes Back on Oversupply Claims
For years, OPEC has challenged the IEA’s glut narrative, arguing that any supply overhang is modest and that the market could tighten faster than expected. The producer group has consistently warned that underinvestment and declining spare capacity could leave the market vulnerable to sudden shocks.
This view was reiterated by Saudi Aramco Chief Executive Amin Nasser, who cautioned against complacency over supply buffers. Speaking at the World Economic Forum in Davos, Nasser said global spare capacity currently stands at about 2.5 percent, below what he considers a safe minimum of 3 percent.
“If OPEC+ further unwinds production cuts, spare capacity will fall even further,” he warned, adding that the situation requires close monitoring.
According to Nasser and other OPEC+ officials, strong demand can absorb excess supply and help restore balance. However, they also caution that the market could slip into undersupply unless producers continue investing in new capacity.
Forecasts Under Scrutiny
Both sides of the debate have vested interests. While OPEC benefits from a tighter market, critics argue that the IEA has also overstated surpluses to support narratives of weakening demand linked to the energy transition.
That tension reached a peak earlier this year when U.S. Energy Secretary Chris Wright warned that Washington could suspend funding for the IEA unless it adopted more realistic forecasting assumptions. Shortly afterward, the agency acknowledged in its World Energy Outlook 2025 that neither oil nor gas demand is expected to peak in the near term.
Recent market events have further highlighted the fragility of the current balance. A brief production halt in Kazakhstan triggered a sharp price reaction, underscoring how quickly perceived supply cushions can disappear.
For now, the oil market remains adequately supplied. Yet the combination of stronger demand, slowing output growth, and declining spare capacity suggests that the glut narrative may be losing ground. As history has shown, complacency in oil markets often comes at a cost.
