IEA Flags Supply Surge Even as Oil Prices Climb Higher

Oil prices closed higher on Friday, despite the International Energy Agency warning that global supply is surging far ahead of demand. Traders remain focused on strong summer consumption, but market fundamentals are shifting rapidly.

The IEA’s July Oil Market Report shows oil demand is rising at its slowest pace since 2009, while supply is accelerating. OPEC+ and non-OPEC producers have both contributed to a sharp increase in output over recent months.

Is the oil market heading for a supply-driven correction?

The IEA projects global oil demand will grow by just 700,000 barrels per day this year, reaching 104.4 million barrels. This represents the lowest annual growth since 2009, excluding the pandemic-induced slump.

Meanwhile, global oil supply jumped by 950,000 barrels per day in June alone, hitting 105.6 million barrels. OPEC+ accounted for a significant share of this increase, with Saudi Arabia leading production gains.

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The IEA says 2025 will see the slowest oil demand growth since 2009, excluding the pandemic year, even as global supply rises at its fastest pace in years.

Will growing inventories threaten oil’s price rally?

Observed oil inventories surged by nearly 74 million barrels in May, with further increases likely in June. China’s crude stocks alone rose by 82 million barrels, reflecting a strategic push to bolster reserves.

OECD commercial product inventories and non-OECD crude stocks also climbed, signaling that much of the new supply is ending up in storage rather than being consumed immediately.

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Oil supply growth outpaces sluggish demand

The IEA expects global oil supply to increase by 2.1 million barrels per day in 2025, outpacing demand growth by a significant margin. Non-OPEC+ producers are forecast to drive most of this increase, adding 1.4 million barrels per day next year.

Refinery activity is also ramping up, with global runs set to peak at 85.4 million barrels per day during the summer travel season. However, refining margins have softened recently as rising crude prices pressure profitability.

OPEC+ and non-OPEC output drive record supply

OPEC+ announced a significant increase in production targets for August, unwinding most of the voluntary cuts that had been in place since 2023. The group could fully restore supply as soon as September, a year ahead of schedule.

Despite the large supply increases, prompt time spreads and strong refinery margins suggest the physical market remains tight for now. Still, the IEA warns that the pace of inventory builds in the coming months will be critical for market balance.

With supply growth now three times faster than demand, traders are watching closely for signs that prices could reverse if inventories continue to swell. The next few months may determine whether oil’s rally can withstand the mounting surplus.