Oil outlook 2026: Supply outpaces demand growth
The global oil market is heading into 2026 with an even bigger surplus, as supply continues to exceed demand. The International Energy Agency (IEA) warns that supply growth will continue to outpace demand growth well into 2026.
Demand: sluggish growth
Oil demand growth is projected to continue at around 1 million barrels per day (mb/d) in 2026, supported by modest economic growth expected in China. Yet several factors continue to weigh on demand growth. Slower global economic growth, the ongoing electrification of transport in China, and ongoing trade tensions are all reducing demand growth.
One temporary boost to demand growth comes from China’s stockpiling efforts. China continues to build reserves to protect against potential future supply disruptions. While this adds short-term demand growth, it does not reflect underlying consumption and may not be sustained.
Supply: rising surplus
On the supply side, global oil production hit a record 106.9 mb/d in August. This was driven by increased output from Middle Eastern OPEC members. This surge in oil production is offsetting declines in Iran, Russia and Kazakhstan. OPEC’s production cuts have narrowed from 5.85 mb/d a year ago to just 2 mb/d today.
The IEA now expects supply growth in 2025 to be four times higher than demand growth, with continued expansion into 2026. Half of this increase is projected from OPEC, the rest from non-OPEC producers. However, actual OPEC+ output remains 1 mb/d above announced levels, as some members exceed quotas. Much of the extra supply is consumed domestically in the Middle East, limiting exports and stabilising prices. Global inventories remain below the 5-year average.
The current market surplus is 1.5 mb/d and could reach 2.5 mb/d by year-end, possibly rising to 3 mb/d in 2026. China’s stockpiling programme helps absorb excess supply, but this may not be sustainable.
Price forecast: Volatility ahead
The trajectory of oil prices in 2026 will depend on how producers respond to oversupply and how geopolitical risks evolve. Geopolitical conflicts and tensions can disrupt supply chains and trigger price volatility. Sanctions on major producers like Iran and Russia continue to constrain export capacity and reshape global trade flows. Brent crude is forecasted to decline further in the coming quarters. We expect a steady decline from the current price to USD 50 by the end of 2026.
Conclusion
Oil markets are expected to remain oversupplied through 2026, with production growth continuing to outpace sluggish demand growth. While China’s stockpiling offers temporary support, underlying consumption trends point to persistent weakness. Price volatility is likely, as producers navigate surplus conditions and geopolitical risks continue to shape global supply dynamics.