Ziggy Ojiegbe

Global oil markets are entering 2026 with a sizeable supply overhang that continues to weigh on prices, even as geopolitical tensions periodically jolt sentiment.

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According to the latest report by the International Energy Agency (IEA), robust supply growth over the past year has built a substantial inventory buffer, muting the price impact of disruptions and keeping crude benchmarks well below last year’s levels.

Data provided by the IEA show that oil demand growth is expected to edge higher in 2026, averaging 930 kb/d compared with 850 kb/d in 2025, as economic conditions normalize following last year’s trade-related turmoil and lower oil prices support consumption.

Growth will again come entirely from non-OECD countries, with a recovery in petrochemical feedstocks demand partly offset by slowing gasoline consumption. While demand is improving at the margin, it remains insufficient to absorb the scale of supply coming to market.

That imbalance is the dominant force shaping prices. Global oil supply is forecast to rise by a further 2.5 mb/d in 2026, following a 3 mb/d increase in 2025. Non-OPEC+ producers account for the bulk of the gains, led by the United States, Canada, Brazil, Guyana and Argentina. Within OPEC+, Saudi Arabia has driven higher output as production cuts were unwound. Barring sustained disruptions or a shift in policy, supply growth is set to continue outpacing demand.

The impact of this surplus is evident in prices. Benchmark crude remains around $16/bbl lower than a year ago, reflecting the large volumes accumulated in storage over the past 12 months. North Sea Dated crude averaged $62.64/bbl in December, its sixth consecutive monthly decline, and briefly fell to just above $60/bbl, the lowest level since early 2021, as markets remained comfortably supplied.

Geopolitical developments have introduced volatility but not yet altered the underlying price trend. Brent crude jumped by around $6/bbl in early January to near $66/bbl amid tensions involving Iran and Venezuela, before easing back toward $64/bbl as fears of major supply losses subsided. Iranian exports have already softened, with loadings falling to around 1.6 mb/d late last year, while Venezuelan crude shipments collapsed in early January following US action against sanctioned tankers. However, these losses have been offset by strong output elsewhere, limiting their price impact.

Russia’s rebound has been particularly notable. Crude production surged by 550 kb/d month on month in December to a 33-month high, despite continued attacks on energy infrastructure. While widening discounts have slashed export revenues, the additional barrels have added to global supply and reinforced downward pressure on prices. At the same time, disruptions to Kazakh exports via the Black Sea and Caspian have so far failed to tighten the market meaningfully.

Inventories underscore why prices have struggled to sustain rallies. Observed global oil stocks rose by around 470 mb in 2025, averaging builds of 1.3 mb/d, with increases visible both onshore and at sea. November alone saw a 75 mb jump, and preliminary data suggest further builds in December, particularly in China following the issuance of new import quotas. OECD industry stocks remain close to five-year average levels, but total global buffers are historically high.

Refining trends have added another layer of pressure. While refinery throughputs surged in December ahead of seasonal maintenance, margins weakened sharply, especially in Europe, where middle distillate cracks fell by half from November highs. Softer refining economics reduce crude pull, reinforcing the supply-heavy balance and limiting upside for prices.

Looking ahead, the outlook for oil prices hinges less on demand growth and more on supply discipline. With demand forecast to rise by less than 1 mb/d in 2026 and supply potentially increasing by more than double that amount, the market appears set to remain well buffered. Unless geopolitical disruptions escalate significantly or producers rein in output, abundant supply and high inventories are likely to keep crude prices under pressure through 2026.