When Excess Demand Meets Market Glut: Understanding the Real Oil Supply Picture

The global oil market tells two conflicting stories. Official forecasts declare significant oversupply, yet prices remain volatile and spare production capacity shrinks by the week. This contradiction sits at the heart of ongoing debates between the International Energy Agency (IEA) and OPEC, revealing that even the most authoritative oil analysts don’t see eye to eye on where the market is heading.

The Supply-Demand Reality Check

According to the IEA’s latest Oil Market Report, global oil demand is projected to grow by 930,000 barrels per day in 2026, up from estimated growth of 850,000 barrels per day in 2025. The agency credits this increase to worldwide economic recovery and the demand stimulus from lower oil prices. However, the anticipated supply expansion tells a different story.

Oil production actually declined in recent months. December saw global output drop by 350,000 barrels per day from November levels, with total production reaching 107.4 million barrels per day—1.6 million barrels below the peak set in September. This marks the third consecutive month of declining output across the fourth quarter. While the IEA estimates that global oil supply grew by 3 million barrels per day throughout 2025, growth is expected to moderate as lower prices trigger producer adjustments.

The current price environment reflects this tension. Oil trades roughly 16% lower than year-ago levels, supported by global crude inventory builds of approximately 1.3 million barrels per day during 2025—a total accumulation of 470 million barrels. Yet consensus on actual demand levels remains fractured: the World Bank estimated late last year that demand would average between 103.8 and 104.5 million barrels daily, while other data sources suggest 2025 demand may have reached as high as 105.5 million barrels per day. This variance matters enormously for forecasting whether excess demand situations are genuine or exaggerated.

Where OPEC and the IEA Diverge

OPEC has long disputed the IEA’s narrative of a substantial oil glut. The cartel argues that any surplus is considerably smaller than the agency portrays and that a shift toward supply deficit conditions is far more probable than current IEA models suggest. This week, Amin Nasser, CEO of Aramco, emphasized a critical concern at the World Economic Forum in Davos: “Spare capacity currently stands at 2.5%, while we require a minimum of 3%. Should OPEC+ relax production restraint further, spare capacity will compress dangerously. This demands constant vigilance.”

OPEC+ officials contend that the oil market will self-correct as robust demand absorbs excess supplies. They warn, however, that without meaningful expansion in production capacity, a shortage could materialize rapidly if demand dynamics shift or supply experiences disruption. This position carries obvious self-interest—OPEC+ benefits from higher prices—yet critics often overlook that the IEA similarly has incentives to emphasize oversupply, using it as evidence that energy transition concerns are reducing fossil fuel requirements.

The Forecasting Gap and Market Risk

This divergence between forecasters has not gone unnoticed in Washington. Energy Secretary Chris Wright criticized the IEA’s oversupply narrative, warning that U.S. funding support could be withdrawn unless the agency’s projections prove more grounded in empirical reality. The IEA subsequently revised course, announcing in its World Energy Outlook 2025 that no imminent peak in oil or gas demand exists. These reversals underscore a uncomfortable truth: even the world’s most respected energy analysts are not infallible, and their models require continuous recalibration.

Recent market history demonstrates how quickly assumptions collapse. When production disruptions occurred in Kazakhstan, prices surged—a reminder that the supposed supply cushion evaporates far faster than most models predict. In the oil industry, assumptions of stability and excess supply often prove dangerously optimistic. Market complacency carries real costs, and vigilance remains the essential discipline for navigating an industry where excess demand can shift unexpectedly to shortage within weeks.