The International Energy Agency just did something it hasn't done in seven months: it reduced its forecast for how oversupplied the oil market will be next year. And in the world of energy forecasting, that's a pretty notable shift.
The agency's December Oil Market Report now projects a 3.84 million barrel-per-day surplus in 2026, down from the 4.09 million barrel-per-day glut it was calling for in November. That's a quarter-million barrel swing, driven by two things happening at once: demand is holding up better than expected, and supply is getting squeezed by sanctions.
On Friday morning, oil prices reflected some optimism. Brent crude futures climbed 46 cents to $61.75 a barrel by 3:55 AM ET, while U.S. West Texas Intermediate crude gained 49 cents to $58.09 a barrel. Both benchmarks were still headed for a roughly 3% weekly loss, though. The Energy Select Sector SPDR Fund (XLE), which holds major players like ExxonMobil (XOM) and Chevron (CVX), ticked up 0.48% in premarket trading. The United States Oil Fund (USO), tracking near-month WTI futures, gained 0.45%.
Demand Gets a Lift From Better Economics and Fading Tariff Anxiety
The IEA raised its global oil demand growth forecasts for both 2025 and 2026, pointing to improving macroeconomic conditions and the fact that everyone seems a bit less freaked out about tariffs. The agency now expects world oil demand to rise by 860,000 barrels per day in 2026, which is 90,000 barrels per day higher than what it projected last month. For 2025, the growth estimate went up by 40,000 barrels per day to 830,000 barrels per day.
According to the report, falling oil prices and a weaker U.S. dollar—both hovering near four-year lows—are likely to give consumption another boost. Nearly all the demand growth in 2025 is expected to come from non-OECD economies, where oil consumption tends to track more closely with broader economic momentum.
The agency also noted that recent U.S. trade agreements helped calm global sentiment after tariff-related uncertainty weighed on markets earlier in the year.
Sanctions Are Actually Working This Time
On the supply side, the IEA trimmed its growth forecasts for 2025 and 2026 because tightened sanctions on Russia and Venezuela are genuinely constraining exports. The agency now expects global supply to rise by 2.4 million barrels per day next year, down from the 2.5 million barrels per day it projected previously.
Supply from OPEC and its key allies—collectively known as OPEC+—is expected to come in lower than earlier estimates. That reflects both disruptions in sanctioned countries and the group's decision to pause output increases during the first quarter of 2026. Global supply dropped by 610,000 barrels per day in November alone, driven by declines in Russia and Venezuela.
Russian export revenues fell to their lowest level since the 2022 invasion of Ukraine, according to the IEA. That's a data point worth paying attention to.
The Americas Keep Pumping
The IEA held its non-OPEC+ supply outlook steady for both 2025 and 2026 as producers in the Americas—including the United States, Canada, Brazil, Guyana, and Argentina—continue to ramp up output.
The agency reiterated that the current "parallel markets" trend will likely persist. That's the situation where crude oil supplies remain abundant while refined fuel markets stay tight. Limited spare refining capacity outside China and ongoing EU sanctions on Russian fuel are expected to keep pressure on product markets.
It's also worth noting that OPEC published its own data on Thursday, and it paints a very different picture. OPEC projects a broadly balanced global oil market in 2026, with supply and demand aligning closely. That's a sharp contrast to the IEA's forecast of a massive glut. Who's right? We'll find out in a couple years.
