Soaring crude oil supply will lead to a record glut later this year and in early 2026 as demand growth will continue to disappoint, according to the International Energy Agency (IEA).

The agency has now downgraded its expectations of global oil demand growth in six out of eight monthly oil reports so far this year. The latest report out this week was no exception and reaffirmed the IEA’s view since the spring that a large glut is coming later this year once the peak summer season is over.

In the IEA’s forecast, demand growth is much weaker than anticipated in early 2025, while supply is much higher than previously thought as the OPEC+ group accelerates the rollback of 2.2 million barrels per day (bpd) of oil production cuts and will have reversed these by the end of September.

‘Bloated Oil Market Balances’

The IEA continues to warn that a large glut is expected within a couple of months as both OPEC+ and non-OPEC+ supply is rising while demand growth is weak, weaker than initially projected.

Global oil demand is now expected to rise by just 680,000 bpd this year, and by 700,000 bpd in 2026, the IEA said in its August report.

These forecasts are a downward revision of 20,000 bpd in demand growth estimates from the July report—yet another downgrade by the agency, which has slashed its projection for the 2025 oil demand growth by a combined 350,000 bpd since the beginning of the year.  

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“The latest data show lacklustre demand across the major economies and, with consumer confidence still depressed, a sharp rebound appears remote,” the IEA said.

“Consumption in emerging and developing economies has been weaker than expected, with China, Brazil, Egypt and India all revised down compared with last month’s Report.”

Record summer jet fuel demand in the United States and Europe will lift aviation fuel demand by more than 2% this year, but it won’t save the overall weakness in demand, according to the agency.

Sanctions on Iran and Russia could constrain supply from these two producers, the IEA acknowledged, but noted “oil market balances look ever more bloated as forecast supply far eclipses demand towards year-end and in 2026.”

At the same time, supply is soaring, the agency says as it hiked its global supply growth forecast by 370,000 bpd to 2.5 million bpd this year, after the eight OPEC+ members agreed in early August to boost output by 547,000 bpd in September, fully unwinding their 2.2 million bpd cuts agreed to in November 2023.

And it’s not even OPEC+ that will lead supply gains. It will be non-OPEC+ producers that will continue to drive growth, adding 1.3 million bpd this year and another 1 million bpd next year, “bolstered by rising output of US NGLs, Canadian crude and US, Brazilian and Guyanese offshore oil,” the IEA says.

According to the agency, the weakness in demand hasn’t been reflected in oil prices yet, as stocks at the pricing hubs remain well below historical averages while record refinery runs in the summer have helped absorb the additional supply.

However, global observed oil inventories built by 1.5 million bpd in the second quarter, with Chinese crude stocks rising by 900,000 bpd and US gas liquids by another 900,000 bpd.

The IEA sees “a record supply glut next year with oil inventories accumulating at a rate of 2.96 mbd, surpassing even the average buildup during the pandemic year of 2020,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, commented.

The U.S. Energy Information Administration (EIA) also sees large inventory builds late this year and in early 2026.

“We now expect global oil inventory builds will average more than 2 million barrels per day (b/d) in 4Q25 and 1Q26, which is 0.8 million b/d more than in last month’s STEO,” the EIA said in last week’s Short-Term Energy Outlook for August.

“Low oil prices in early 2026 will lead to a reduction in supply by both OPEC+ and some non-OPEC producers, which we expect will help moderate inventory builds later in 2026,” said the EIA, which slashed its forecast for Brent crude prices to average $51 per barrel next year, down from $58 a barrel expected last month.

Bearish IEA, Bullish OPEC

The IEA continues to be miles apart from OPEC in oil demand forecasts. The agency is much more bearish on oil demand growth than OPEC, which said in its own report this week that demand in 2026 is set to strengthen on the back of expected stronger economies in key oil-consuming regions.

OPEC’s demand growth estimate is nearly twice the growth forecast by the IEA.

The cartel left its demand growth estimate for this year unchanged at 1.29 million bpd, expecting global consumption to hit 106.36 million bpd in the fourth quarter.

For 2026, the estimate is that the world will consume an average of 106.52 million bpd of oil, up by 100,000 bpd compared to last month’s assessment, OPEC said.

According to the IEA, global oil demand next year would be 104.4 million bpd.

While the IEA expects non-OPEC+ supply to grow by 1 million bpd and even more this year and next, OPEC puts the growth in rival supply at 800,000 bpd in 2025 and 600,000 bpd in 2026.

Next year, in a major shift from the past years, it will be Brazil that will lead annual production growth among non-OPEC+ producers, not the United States. Brazil’s annual production growth is estimated at 160,000 bpd in 2026, while the U.S. increase is seen at 130,000 bpd, according to OPEC’s latest estimates.

The cartel appears bullish on global oil demand and expects lower supply from rival producers, while the IEA continues to warn that demand growth will disappoint and help build a record glut on the market.

By Tsvetana Paraskova for Oilprice.com

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