IEA cuts oil surplus forecast as demand growth outlook raised

The projected global crude oil surplus in the fourth quarter of 2025 has narrowed due to a halt in production, the International Energy Agency said on Thursday. 

Meanwhile, the forecast for global crude oil demand growth in 2025 has been scaled up by the IEA in its December Oil Market Report. 

The Paris-based agency's December estimate suggests a reduced global oil surplus compared to its November report.

It now projects oil supply will exceed demand by 3.84 million barrels per day, a decrease from the 4.09 million bpd surplus previously estimated.

Higher oil demand, weaker surplus

The IEA has increased its global oil demand growth projections for both the current and next year. 

This revision is attributed to an improved global economic outlook and the fact that "anxiety about tariffs having largely subsided."

Conversely, the IEA anticipates a slight decrease in supply growth for 2025-2026 compared to earlier forecasts.

This expected slowdown is due to sanctions imposed on Russia and Venezuela impacting their oil exports.

The agency also foresees a continuing trend of "parallel markets" for some time. 

This situation involves an abundant crude oil supply existing simultaneously with tight fuel markets. 

The persistence of this dynamic is linked to limited spare refining capacity outside of China and the impact of new EU sanctions on Russian crude-derived fuel exports.

Bright demand outlook

IEA forecasts that global oil demand will grow by 830,000 bpd in 2025 and by 860,000 bpd next year. 

The agency said:

This year's gains are primarily driven by gasoil and jet/kerosene, which together account for half of the total increase, the agency said.

Conversely, fuel oil is seeing reduced demand due to competition from natural gas and solar energy in power generation. 

Looking ahead to 2026, petrochemical feedstocks are projected to become the dominant growth sector, with their share of growth expected to rise significantly from 40% in 2025 to over 60%, it said.

According to the IEA, economic confidence has been restored, thanks to a series of successful US trade agreements.

This follows a period earlier in the year when consumption was negatively impacted by tensions related to tariffs.

Sanctions hit supply

The IEA has revised its forecast for global oil supply growth next year, now expecting a rise of 2.4 million bpd, a slight decrease from its previous prediction of 2.5 million bpd.

Due to disruptions caused by sanctions, the IEA has lowered its projected output figures for OPEC+ producers for both 2025 and 2026.

According to the IEA, global oil supply dropped by 610,000 bpd in November compared to the previous month.

This decline was attributed to reduced output from Russia and Venezuela, both of which are facing sanctions.

The IEA reported that Russian export revenues reached their lowest point in November since the 2022 full-scale invasion of Ukraine.

Conversely, the IEA maintained its stable forecasts for non-OPEC+ output for both the current and next year, citing increased production primarily in the Americas, specifically the US, Canada, Brazil, Guyana, and Argentina.