IEA Warns of Looming Oil Glut, Signaling Headwinds for Energy Rally
A projected supply surplus of up to 4 million barrels per day by 2026 threatens to cap crude prices after a period of strong gains, according to the energy watchdog.
A significant oil supply glut is expected to emerge in the coming year, threatening to “moderate” crude prices and potentially bringing an end to the powerful rally that has boosted energy stocks. Fatih Birol, the influential chief of the International Energy Agency (IEA), issued the warning, citing a market imbalance that could redefine the landscape for producers and investors.
The Paris-based energy watchdog forecasts a period of significant oversupply, driven by surging production from both OPEC+ and non-OPEC+ nations combined with softening global demand. According to a recent IEA market report, the surplus could reach a staggering 4 million barrels per day (b/d) in 2026. This projection points to a ceiling for oil prices after a sustained period of gains fueled by production cuts and geopolitical tensions.
This outlook is underpinned by robust supply growth that is set to outpace consumption. The IEA projects global oil supply will climb to 108.5 million b/d by 2026, while demand is forecast to grow more slowly, reaching 105.5 million b/d. In a recent commentary, the agency noted that “as oil market surplus keeps rising, something’s got to give,” highlighting the downward pressure this imbalance will exert on the market.
The forecast has already begun to ripple through the market, with futures contracts reflecting expectations of lower prices ahead. The market for Brent crude, the international benchmark, has shifted into a structure known as “contango,” where future prices are lower than current spot prices, signaling that traders anticipate growing inventories and weaker fundamentals.
The IEA’s analysis suggests a potential slide in Brent crude prices from their current levels to an average of around $69 per barrel in 2025, with a further decline toward $58 per barrel possible in 2026. Such a decline would represent a significant reversal from the highs seen over the past two years and would directly impact the profitability of major oil producers like ExxonMobil, Chevron, and Shell, which have benefited from elevated prices.
Slowing demand growth is a key component of the IEA's forecast. Persistent macroeconomic headwinds in major economies and the accelerating adoption of electric vehicles and renewable energy sources are expected to temper the world's thirst for oil. The agency has repeatedly revised its demand growth projections downward, compounding the effect of rising production.
While the IEA’s forecast presents a bearish case for oil, the market continues to face a complex web of geopolitical risks that could disrupt supply chains and support prices. Ongoing conflicts, potential OPEC+ policy shifts, and unforeseen disruptions remain critical wildcards for investors. For now, the market is left to balance the stark mathematical reality of a looming surplus against the ever-present threat of geopolitical instability.