IEA Revises 2025 Global Oil Supply Forecast, Highlights Market Imbalance Risks

The International Energy Agency (IEA) has revised its 2025 global oil supply growth forecast upward to 2.5 million barrels per day (bpd), an increase from the previous estimate of 2.1 million bpd. This adjustment follows the decision by the OPEC+ producer group to raise oil production. Concurrently, the IEA has lowered its global oil demand growth forecast to 680,000 bpd, down from 700,000 bpd, citing subdued demand in major economies and continued low consumer confidence.

The IEA's August 2025 Oil Market Report highlights a potential "large overhang" in the oil market as global production surges, particularly led by Saudi Arabia, while demand weakens, especially in Asia. The agency has significantly lowered its global oil demand growth forecast for 2025 to 680,000 bpd, the slowest rate since 2009, excluding the COVID-19 period. This downgrade is driven by sluggish consumption in China, India, and Brazil, all of which face economic uncertainty due to potential U.S. trade tariffs. Meanwhile, global oil supply is now increasing faster than demand, with production expected to grow by 2.5 million bpd in 2025—30% more than estimated in January. Most of the early-year surplus was absorbed into storage, mainly by China. However, starting in autumn, the IEA forecasts a persistent oversupply of around 2 million bpd through 2026. Despite the oversupply risks, the IEA noted that this outlook could shift if the U.S. toughens sanctions on major oil producers like Russia and Iran. In contrast, OPEC raised its demand forecast and lowered expectations for non-OPEC supply growth.

In July 2025, OPEC's oil production increased to 27.38 million bpd, up by 270,000 bpd from June, according to a Reuters survey. This rise followed an OPEC+ agreement to boost output, with the United Arab Emirates (UAE) and Saudi Arabia contributing the most to the increase. However, the overall hike was moderated by Iraq undertaking additional compensation cuts and experiencing disruptions due to drone attacks in Iraqi Kurdistan.

Despite OPEC+ announcing significant oil production increases—the first in three years—the oil market remains tight due to multiple supply-side constraints. While quotas suggested an extra 2.5 million bpd by September compared to March, actual production gains have fallen short. This shortfall is due to some countries, like Iraq and Kazakhstan, reaching production limits or compensating for past overproduction, while others, such as Russia, face external challenges like infrastructure disruptions. Saudi Arabia alone accounted for most of the increase, contributing over 70% of the added supply, but even its excess exports were partly channeled into storage. Meanwhile, seasonal demand spikes in the Middle East and increasing stockpiling by China have absorbed the extra output. OECD oil stockpiles remain historically low, lending further support to prices. As a result, Brent crude futures rose to $68 from April's low of $58, with prompt prices trading at a premium—an indicator of ongoing tightness. The consistent gap between quota targets and actual output highlights structural production limitations within many OPEC+ countries, despite their eagerness to secure higher future quotas.

Kuwait's Oil Minister, Tariq Al-Roumi, stated that OPEC is closely observing global oil market trends, particularly shifts in supply and demand and remarks made by U.S. President Donald Trump regarding Russian oil. Al-Roumi anticipates oil prices will stay below $72 per barrel, describing the market as healthy with moderate demand growth. Oil prices recently dropped by about 1% to an eight-week low following Trump’s comments, which introduced uncertainties about additional sanctions on Russia due to the ongoing war in Ukraine. The U.S. also imposed a 25% tariff on Indian goods in response to India's continued imports of Russian oil.

Barclays has revised its oil price forecasts downward for 2025 and 2026, lowering Brent crude estimates by $4 to $66 per barrel for 2025 and by $2 to $60 per barrel for 2026. The decision comes in response to OPEC+ accelerating output hikes, which has contributed to falling oil prices. OPEC+, comprising the Organization of the Petroleum Exporting Countries and allies like Russia, announced a June production increase of 411,000 bpd. The expansion is partly driven by Saudi Arabia's intent to enforce better compliance on quotas by Iraq and Kazakhstan. Barclays attributes this shift to strong market fundamentals and external influence rather than internal overproduction. They now project that OPEC+ will complete phasing out voluntary output cuts by October 2025, faster than previously anticipated. Accordingly, Barclays adjusted its supply estimates upward by 390,000 bpd for 2025 and 230,000 bpd for 2026 while expecting slower U.S. oil growth, with output predicted to decline by 100,000 bpd from Q4 2024 to Q4 2025, and by 150,000 bpd in 2026. Brent crude traded at $59.20 per barrel as of early Monday trading.

The IEA's August 2025 Oil Market Report indicates that while oil market balances look increasingly bloated as forecast supply far eclipses demand towards year-end and in 2026, additional sanctions on Russia and Iran may curb supplies from the world’s third and fifth largest producers. At the end of July, the U.S. Department of the Treasury announced its most significant Iran-related sanctions since 2018, aimed at making it more difficult for Iran to sell its oil. Washington is also pressuring major buyers of Russian crude oil, most notably India, to scale back purchases. For its part, the European Union has imposed a ban on imports of oil products refined from Russian crude oil starting in January 2026. It will also set a lower price cap for Russian oil from 3 September as part of its 18th sanctions package against Moscow. By contrast, restrictions on Venezuela have been eased with Chevron recently awarded a new licence to operate and export oil. While it is still too early to determine the outcome of these latest policy changes moving in different directions, it is clear that something will have to give for the market to balance.

In June 2025, Iran reportedly issued a threat to block the Strait of Hormuz in response to Israeli attacks targeting its military and nuclear infrastructure. The Financial Times reported that such action could cause oil prices to surge beyond the recent 7–14% increases, possibly exceeding $100 to $150 per barrel. This would likely fuel global inflation and contribute to an economic downturn. Analysts emphasized the vulnerability of regional exporters, noting that "Saudi Arabia, Kuwait, Iraq and Iran are wholly locked into one tiny passage for exports." The Strait handles 18-19 million barrels per day, nearly 20% of global oil consumption, including crude, condensates, and fuel. Analysts have warned that Iran could suffer severe consequences from any attempt to block the Strait. "Iran's economy heavily relies on the free passage of goods and vessels through the seaway, as its oil exports are entirely sea-based," analysts from JP Morgan explained. Closing the strait could strain Iran’s crucial energy trade with China, its only major oil customer. Speaking during a press conference on June 17, U.S. Secretary of State Marco Rubio also warned Iran against attempting to shut down the Strait, stating that such a move would be "economic suicide" for the Islamic Republic, as the waterway is vital for its exports. On 17 June, two oil tankers collided in the Strait, though reports did not suggest that this was a security-related incident. The vessels involved were the Front Eagle, carrying crude oil from Iraq to China, and the Adalynn, which was unladen and en route to the Suez Canal. Both caught fire on deck, but no oil spill occurred. All crew members aboard the Adalynn were safely evacuated by the UAE coast guard.

After the United States strikes on Iranian nuclear sites on 22 June, the Iranian Parliament voted to close the Strait. A final decision rests with Iran’s Supreme National Security Council. Revolutionary Guards commander Esmaeil Kousari confirmed that shutting the Strait would be executed "whenever necessary", to protect national sovereignty and deter further foreign aggression. The potential closure of the Strait, through which 20% of the world’s oil supply transits, would significantly disrupt global energy markets. Such a move could cause oil prices to increase and risk destabilizing the global economy, given the Strait's critical role as a maritime chokepoint for crude oil, liquefied natural gas, and other petroleum products. On 23 June 2025, oil prices were below $70 again (7% lower than on June 20), indicating that the oil market viewed the US strikes, and Iran's response (the Strait remaining open, and 2025 Iranian strikes on Al Udeid Air Base), as inconsequential.

The IEA's August 2025 Oil Market Report underscores the delicate balance between supply and demand in the global oil market. While increased production from OPEC+ nations aims to stabilize prices, the combination of subdued demand growth and geopolitical uncertainties presents challenges.