This article was published by the International Energy Agency on Oct. 17, 2025.
By Toril Bosoni, Head of Oil Industry and Markets Division
Oil surplus hits the water
The global oil market may be at a tipping point as signs of a significant supply glut emerge. The overall oil surplus averaged 1.9 million barrels per day (mb/d) from January through September 2025. Crude oil prices remained largely resilient, as stock builds were concentrated in areas that have less direct influence on price formation, notably crude in China and gas liquids in the United States. Crude inventory levels in key pricing hubs remained relatively low. However, more recently, surging supplies from the Middle East and the Americas are pointing to an untenable surplus of nearly 4 mb/d in 2026, making it increasingly clear that something has to give.
Observed global oil inventories built by 225 million barrels from January through August, reaching a four-year high of 7.9 billion barrels. More than one-third of the increase occurred in Chinese crude stocks, which now sit 30% above their 2019 level. China’s substantial stockpiling this year has been underpinned by a new Energy Law, enacted on 1 January 2025, aimed at improving its energy security. With limited storage capacity available in the country’s strategic petroleum reserves (SPR), oil companies are now mandated to increase oil stocks at their own commercial storage facilities, effectively positioning the private firms as long-term strategic storage partners for the government. (For more, read the item “Chinese Government Reforms Unlock the Potential of Companies Stockpiling Reserves” in the July 2025 edition of our Oil Market Report.)
At the same time, stocks of natural gas liquids (NGLs) in the United States rose by 67 mb, significantly more than their seasonal norm as trade tensions disrupted sales to Chinese petrochemical plants. Elsewhere, markets remain much tighter. For instance, industry crude stocks in advanced economies fell by 10.4 mb over the past five months, while crude stocks in emerging and developing economies outside China rose by a meagre 5.5 million barrels over the same period. Notably, oil inventories in key markets, such as the United States, remain low by historic standards and this has supported prices.
By September, however, a surge in oil production and exports from countries in the Middle East coincided with seasonally lower demand for power generation in the region and the start of seasonal maintenance by refiners. This, combined with robust crude flows from the Americas, saw the amount of oil being transported or stored on water swell by a massive 102 million barrels, the largest increase since the Covid-19 pandemic. Once vessels start to unload, onshore crude stocks outside of China will rise, which could put further pressure on prices.
Surging supply meets tepid demand
The implied overhang in global oil markets for 2026 has ballooned from 1 mb/d back in April, when we published the first near-term IEA forecast for the year, to nearly 4 mb/d in our latest monthly update published this week. That is in large part due to the accelerated unwinding of extra voluntary production cuts agreed in 2023 by eight OPEC+ countries (Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria and Oman). Following five years of production restraint, OPEC+ is now on track to boost output by an average of 1.4 mb/d this year and by a further 1.2 mb/d in 2026.
The outlook for non-OPEC+ supply growth has also marginally increased, to 1.6 mb/d in 2025 and 1.2 mb/d in 2026, mostly due to improved operational efficiency in Brazil and resilient oil production from the United States. Indeed, the United States, Brazil, Canada, Guyana and Argentina are forecast to account for a large majority of non-OPEC+ supply growth this year and next. At this rate, global oil supply is on track to rise by 3 mb/d on average in 2025 and a further 2.4 mb/d in 2026.
Those hefty increases are set against a backdrop of tepid demand growth, which is expected to be around 700 kb/d in both 2025 and 2026. In the third quarter of 2025, global oil demand rose by 750 kb/d y-o-y. While an increase from the second quarter’s 420 kb/d pace, this headline figure is markedly lower than the historical trend, weighed down by subpar economic conditions, increasing vehicle efficiencies and robust electric vehicle sales in many markets.
Clearing the overhang
A surplus of the magnitude implied by the market balances is unlikely to materialise in practice, as the market will inevitably adjust.
Oil demand is inelastic by nature, meaning that it takes large oil price moves to materially impact demand in the short term. For example, a lasting 10% rise in oil prices would roughly reduce global oil consumption by around 0.3%. This mainly reflects energy’s status as a basic good, fundamental to people’s daily lives, and the cost of equipment to use it. Government intervention through subsidies and price controls, commonplace in emerging economies, may dampen the transmission of market signals to retail buyers during periods of rising or falling prices, with currency movements further weakening this linkage.
So rebalancing will likely have to come from the supply side. OPEC+ countries have repeatedly stated that they will continue to closely monitor and assess market conditions, noting that they may pause or reverse the unwinding of production cuts to support market stability.
Lower prices may also elicit a response from higher-cost producers across the US shale patch and from some mature conventional sources as operators cut back spending. Indeed, recent surveys commissioned by the Dallas and Kansas City Federal Reserve Banks note that breakeven prices for US shale sit close to $60/bbl of WTI, and that should prices fall to $50/bbl, 90% of operators expect their production to decline. The IEA’s recent report on decline rates shows that if lower prices result in reduced investment in field maintenance, it will increase the impact of decline rates on future supply.
Finally, the risks surrounding oil supplies from Venezuela, Iran and Russia, all currently under sanctions, remain ever-present. Tougher US sanctions on Iran are already complicating Tehran’s ability to sell its crude abroad, with purchases from China’s independent refiners declining in recent months. Many advanced economies have begun to tighten the screws on Russia’s energy sector in a bid to curb the export revenues that are helping finance the war in Ukraine. Indian imports of Russian crude have already eased. Persistent Ukrainian drone attacks on Russian energy infrastructure have significantly reduced Russian refinery activity, causing domestic fuel shortages and lower product exports. This has reverberated across global markets for middle distillates such as diesel and jet fuel. If pressure on Russia’s oil sector is maintained or intensified, further production declines may well be on the horizon.
How exactly events unfold remains to be seen. In the meantime, ample supplies provide an opportunity for both industry and governments to replenish depleted reserves. With geopolitical tensions remaining elevated, a return to higher inventory levels would significantly bolster energy security.
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