The International Energy Agency (IEA) issued a "seemingly contradictory" signal in its latest monthly report: at the beginning of the year, supply contracted significantly due to extreme weather and disruptions in many places, but by 2026, the global oil market could still face a more pronounced supply surplus; at the same time, high oil prices and macroeconomic uncertainty are suppressing demand growth.
IEA: Demand growth slows, new demand in 2026 revised down to 850,000 barrels/day
The IEA indicated that global oil demand in 2026 is expected to increase by only 850,000 barrels per day, revised down by 80,000 barrels per day from last month's forecast. The agency attributes the adjustment to "economic uncertainty" and the dampening effect of "rising oil prices" on consumption, emphasizing that this growth rate is significantly lower than the more optimistic projection by the oil-producing organization OPEC.
Supply Side: January supply plummets, but annual surplus may near 4%
On the supply side, the IEA reports that global supply decreased by 1.2 million barrels per day in January, dropping to 106.6 million barrels per day; factors such as severe winter storms in North America, disruptions at Kazakhstan's Tengiz oil field, and changes in flow in Russia, Venezuela, and other areas affected that month's supply.
Nevertheless, the IEA still expects supply to increase by approximately 2.4 million barrels per day by 2026 and warns that the annual "supply exceeding demand" scale is about 3.73 million barrels per day, equivalent to nearly 4% of global demand.
Price Clues: Geopolitics and weather boost early-year market activity, but prices recede post-report
The IEA noted that the U.S.-Iran tensions combined with extreme weather in North America and supply disruptions in Kazakhstan turned market sentiment bullish early in the year, with oil prices up approximately 14% year-to-date; however, following the IEA's report indicating "persistent oversupply," oil prices turned lower that day, with Brent falling below the $70 mark.
Next Steps: OPEC+ production increase pace and inventory changes to determine whether "surplus" materializes
The IEA believes that one of the key reasons for supply growth outpacing demand is OPEC+'s gradual production increases starting from April 2025; however, the alliance has suspended the production increase scheduled for the first quarter of 2026, with eight member countries planning to decide at their March 1 meeting whether to resume production increases in April. Meanwhile, the output from non-OPEC+ oil-producing countries such as the United States, Brazil, and Guyana is also a crucial variable in determining the speed of rebalancing supply and demand.
