Global oil supply growth outpaces demand growth, but indicators point to tighter market conditions

According to the IEA, the global oil market could be under more pressure than anticipated, even though official figures point to a large surplus.

The IEA raised its forecast for world supply growth this year to 2.1 million oil barrels a day, an increase of 300k barrels a day from its previous estimate, while trimming its demand growth outlook to 700k barrels a day. On paper, that gap suggests a hefty oversupply.

Yet the agency warned that stronger refining activity, driven by traveling during the summer and higher power-generation needs, was eating into spare volumes. It noted that last Saturday’s OPEC+ decision to speed up the rollback of its production cuts had done little to loosen the market.

“The decision by OPEC+ to further accelerate the unwinding of production cuts failed to move markets in a meaningful way given tighter fundamentals,” the IEA said in its monthly report. It added that price signals, including firm refining margins and backwardation in oil forward curves, refer to a market under more strain than the headline balances imply.

Earlier, oil ministers from OPEC nations and leaders of Western energy companies delivered a similar message, saying that extra barrels had not translated into larger inventories and that demand remained strong.

On Monday, Brent crude jumped almost 2% to $70 per barrel after the group announced an output hike more than expected despite worries over US tariffs. By Friday, the benchmark traded close to $69.

As further evidence of tighter conditions, the IEA highlighted that the premium for delivery immediately over later contracts remains steep, and that refiners are still enjoying healthy profits, even after accounting for stock builds.

The IEA expects oil demand to climb by August

The Northern Hemisphere has a higher use of oil, especially during summer travel, and the IEA expects refinery crude throughput to climb by almost 3.7 million barrels per day from May through August due to high demands by airlines and road trips.

Along with that, crude burned in refineries to generate electricity, mainly to power air conditioners, will double to about 900,000 barrels a day, it said.

Despite the seasonal boost, this year’s projected demand gain of 700k barrels per day is the least after the 2020 pandemic slump since 2009. The IEA cautioned that it is still early to pin demand headwinds on American import tariffs, and the sharpest drops have appeared in Japan, the US, Mexico, South Korea, and China.

The agency’s demand forecasts sit at the low end of industry estimates, reflecting its belief in a faster shift toward cleaner energy compared to some peers. In contrast, OPEC expects global oil use to grow by about 1.3 million barrels per day in 2025, nearly double the IEA’s figure.

Looking ahead to 2026, the IEA expects that demand will rise by 720,000 barrels per day to 20,000 barrels per day below its previous view, while supply will expand by almost 1.3 million barrels per day.

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