Oil prices are set to remain under pressure in 2026 despite rising geopolitical tensions, as modest demand growth is being overwhelmed by rapid supply expansion and swelling inventories.
The International Energy Agency (IEA) expects global oil demand to rise by about 930,000 barrels a day this year, driven almost entirely by non-OECD economies, but warned on Wednesday that production growth is running nearly three times faster — creating a surplus that is likely to cap any sustained rally and keep crude trading in a volatile $60 to $70 range.
Global oil supply is projected to increase by around 2.5 million barrels a day in 2026 to nearly 108.7 million barrels a day, following a roughly 3 million barrels a day rise last year. Non-Opec+ producers are expected to account for a large share of the growth, led by the United States, Canada, Brazil, Guyana and Argentina, while Saudi Arabia has driven much of the recent Opec+ increase as earlier production cuts were unwound. “The market is entering 2026 with a significant supply buffer that reduces the risk of price spikes unless disruptions become severe and prolonged,” the IEA said in its latest assessment.
Stock builds remain the dominant feature of the current oil cycle. Observed global inventories rose by about 470 million barrels in 2025, averaging nearly 1.3 million barrels a day. In November alone, stocks jumped by more than 75 million barrels, with crude accounting for almost all of the increase, largely onshore. Preliminary data indicate inventories rose further in December, driven by product builds and stronger Chinese imports after new import quotas were issued. OECD industry stocks climbed to around 2.84 billion barrels, broadly in line with the five-year average but significantly higher than a year earlier.
Refining activity surged late last year, with global crude throughputs rising by around 2 million barrels a day in December to nearly 85.7 million barrels a day ahead of seasonal maintenance in major consuming regions. For 2026, refinery runs are forecast to average about 84.6 million barrels a day, with growth of roughly 770,000 barrels a day, slightly below last year’s pace. However, margins weakened sharply toward year-end, particularly in Europe, where middle distillate cracks fell by about half from November highs, reflecting softer industrial demand and rising product inventories.
Prices have struggled to gain traction despite repeated geopolitical shocks. North Sea Dated crude averaged about $62.64 a barrel in December, marking a sixth consecutive monthly decline and touching lows not seen since early 2021. Benchmark prices remain roughly $16 a barrel below year-ago levels. At the start of January, Brent briefly jumped by about $6 a barrel to near $66 following renewed tensions linked to Iran and Venezuela before easing back toward the mid-$60 range as markets refocused on supply fundamentals.
More recently, oil prices slipped again as traders anticipated rising US crude stockpiles. Brent futures settled near $64.22 a barrel on January 21, down about 1.08 per cent, while US West Texas Intermediate fell to around $59.81 a barrel. The decline came despite temporary production disruptions at major Kazakh oilfields and renewed geopolitical uncertainty tied to US tariff threats involving Greenland-related negotiations with European countries.
Goldman Sachs said geopolitical risk premiums are increasingly being “absorbed by the weight of surplus supply”, projecting Brent to trade mostly within a $60 to $70 range this year. JPMorgan warned prices could test the low-$60 or even high-$50 range if demand softens further or if Opec+ accelerates the pace of production increases.
“The market is structurally long barrels,” JPMorgan analysts said, pointing to inventory builds and strong non-Opec output growth. Morgan Stanley, meanwhile, said Opec+ retains enough spare capacity and policy flexibility to step in if prices fall too sharply, limiting extreme downside risks.
Supply disruptions in several producers have so far failed to materially tighten balances. Iranian exports declined by about 350,000 barrels a day from October highs, while Venezuelan shipments fell sharply in early January amid tighter enforcement of US sanctions. At the same time, Russian output rebounded strongly in December, rising by around 550,000 barrels a day month on month to a multi-year high, offsetting losses elsewhere. Kazakhstan’s exports were disrupted by drone attacks on infrastructure, but the impact has been muted by ample global supply.
Opec has maintained a more optimistic demand outlook, citing steady economic growth and resilient travel demand, but acknowledged that trade tensions, tariffs and slowing industrial activity could weigh on consumption. The US Energy Information Administration has also flagged continued growth in US shale output and rising exports from the Americas as key factors keeping markets well supplied.
With supply growth set to outpace demand by a wide margin and storage tanks already brimming, oil markets are entering 2026 with one of the strongest buffers in years, analysts said. “That surplus is expected to cap prices, amplify short-term volatility around geopolitical flashpoints, and reinforce a reality traders are increasingly pricing in: in the current cycle, abundance — not scarcity — is once again defining the direction of global crude markets.”
