The world oil market will face a significant surplus in Q1, and excess supply has offset geopolitical risks of disruption so far, the International Energy Agency said Wednesday in its monthly oil market report.
The Paris-based IEA projected global oil supply would exceed demand by 4.25M bbl/day in Q1, a surplus that would equal ~4% of world demand.
“Barring any significant disruptions to supplies in Iran, Venezuela, or further cuts from other producers, a significant surplus is likely to re-emerge in the first quarter of 2026,” the agency said. “For now, bloated balances provide some comfort to market participants and have kept prices in check.”
Helping to erode the surplus outlook, the IEA bumped up its prediction for world oil demand growth for the year by 70K bbl/day to 930K bbl/day, citing a “normalization” of economic conditions after last year’s tariffs and lower oil prices than a year ago.
On supply, the IEA upwardly revised its global growth forecast for this year to 2.5M bbl/day from 2.4M bbl/day in December, with slightly more than half of the growth coming from outside OPEC+.
“A further decline in global oil supply in December continued to chip away at the market surplus that has built up since the start of 2025,” the IEA wrote, but “with seasonal refinery maintenance about to commence, reducing demand for crude, further reductions in crude production will be needed to help balance the market.”
Crude oil futures edged higher Wednesday, supported by rising demand for heating oil due to cold winter weather as well as easing tensions between the U.S. and Europe after President Trump said in Davos that the U.S. would not use force to take control of Greenland.
Front-month Nymex crude (CL1:COM) for March delivery settled +0.4% to $60.62/bbl, and front-month Brent March crude (CO1:COM) closed +0.5% to $65.24/bbl.
Both contracts gained ~1.5% in the previous session after OPEC+ producer Kazakhstan halted output at its Tengiz and Korolev oilfields due to power outages.
U.S. natural gas futures extended their rally as the market braces for extreme weather across much of the U.S., which is bound to boost heating demand and could cause substantial production freeze-offs; front-month Nymex natural gas (NG1:COM) for February ended +24.8% to $4.875/MMBtu, soaring 57% over the last two sessions.
