IEA Reports Upward Revision in Global Oil Supply Amid Demand Concerns

In its August 2025 Oil Market Report, the International Energy Agency (IEA) highlighted a significant upward revision in global oil supply forecasts, driven by increased production from OPEC+ members. This surge in supply contrasts with a downgraded outlook for global oil demand, raising concerns about potential market imbalances.

On August 3, 2025, eight OPEC+ countries—Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman—agreed to raise production by an additional 547,000 barrels per day (bpd) in September. This decision effectively reverses the 2.2 million bpd cuts implemented since November 2023. Consequently, the IEA now projects a global oil supply growth of 2.5 million bpd for 2025, an increase of 370,000 bpd from previous estimates. Non-OPEC+ producers are expected to contribute 1.3 million bpd to this growth, with significant outputs from the United States, Brazil, and Guyana.

Despite the supply surge, the IEA has downgraded global oil demand growth to 700,000 bpd for both 2025 and 2026, reflecting weaker-than-expected consumption in major economies. The report attributes this adjustment to lackluster demand across major economies and depressed consumer confidence. Notably, consumption in emerging and developing economies, including China, Brazil, Egypt, and India, has been weaker than anticipated. However, robust summer travel has propelled jet fuel demand to all-time highs in both the United States and Europe.

The report also highlights potential market imbalances, with supply outpacing demand. Additional sanctions on Russia and Iran could further influence global oil dynamics. The U.S. Department of the Treasury announced significant Iran-related sanctions 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. The European Union has imposed a ban on imports of oil products refined from Russian crude oil starting in January 2026 and plans to set a lower price cap for Russian oil from September 3, 2025.

Despite expectations of a supply surplus, oil prices have exhibited an unusual trend known as the "forward curve smile." While current prices are declining, future contracts show pronounced backwardation before shifting to contango. This anomaly raises concerns for traders, who might soon face a need to store excess crude if the supply glut materializes. Potential explanations include market optimism about OPEC+ stepping in to cut output again, geopolitical uncertainty, or trader skepticism toward supply-demand forecasts.

The U.S. shale industry, which has thrived for a decade, is facing challenges due to falling oil prices triggered by increased global production from OPEC and OPEC+ led by Saudi Arabia. By reintroducing 2.2 million barrels a day into the market, OPEC aims to reclaim market share, pressuring U.S. producers who require at least $65 per barrel to break even. As a result, U.S. shale companies are reducing drilling and cutting back operations to preserve cash.

Despite ongoing diplomatic efforts to resolve the Ukraine war, global oil and gas markets are unlikely to be affected significantly by its outcome. Western sanctions have disrupted energy flows, reducing Europe's reliance on Russian oil and gas while increasing Russian exports to India, China, and Turkey. Even a partial or temporary peace deal would not restore Russian energy exports to Europe, especially with Putin still in power. The energy markets are cushioned by an emerging supply surplus, with global production outpacing demand through 2026.

The IEA's August 2025 Oil Market Report underscores a complex interplay between rising oil supplies and stagnant demand, compounded by geopolitical tensions and market anomalies. Stakeholders must navigate these dynamics carefully to maintain market stability.