Prices can jump on headlines, exports can get squeezed at the margins, and infrastructure can take hits, but the market is sitting on accumulated surplus that keeps the floor from becoming the ceiling. The IEA calls it a buffer zone for a reason.
What happened in the report’s frame is straightforward. Demand growth is forecast to average 930 kb/d in 2026, up from 850 kb/d in 2025, with non-OECD countries accounting for all of the growth. At the same time, supply is projected to rise to 108.7 mb/d in 2026 after already climbing sharply in 2025, and observed inventories have been building at a pace that is difficult to ignore. In 2025, observed global oil stocks rose by 470 mb, about 1.3 mb/d on average, and in November alone they surged by 75.3 mb, or 2.5 mb/d, with crude oil accounting for 96% of that increase and much of it moving onshore.
This is not a market starved of material. It’s a market negotiating with excess.
The report lays out the early-year volatility and then quietly explains why it hasn’t become a crisis. Benchmark crude prices jumped by about $6/bbl at the start of the new year amid geopolitical developments involving Iran and Venezuela, then eased by mid-month as tensions moderated. The report notes Brent moving up to around $66/bbl in the early weeks of January before easing to $64/bbl at the time of writing. In the background, North Sea Dated averaged $62.64/bbl in December, down $0.99/bbl month-on-month, marking the sixth consecutive monthly decline, and the report points out prices hit a low of $60.07/bbl mid-month, the weakest since early 2021.
“This wasn’t about scarcity. It was about nerves.”
The long paragraph belongs to the structure that professionals should actually file away. The report shows how the market is being asked to price two separate things at once: localized export stress and global balance comfort. On the stress side, Iranian loadings dropped by 350 kb/d from an October high to 1.6 mb/d over November and December, with volumes piling up at sea. Venezuelan crude exports, already under pressure, slumped from 880 kb/d in December to around 300 kb/d in early January, impacted by a U.S. blockade of sanctioned oil tankers. There are also disruptions in Kazakhstan tied to drone attacks on vessels and export infrastructure in the Black Sea and Caspian, curtailing supplies and exports. Those are real constraints. But the report insists they are being absorbed because the balance is bloated: global stocks rose heavily across 2025, oil on water surged, Chinese crude stocks increased, and U.S. gas liquids inventories rose. The surplus is not an abstract spreadsheet number; it’s physical inventory that can be drawn down while markets argue about geopolitics. That surplus has been underpinned by robust supply growth since the start of 2025, with non-OPEC+ producers accounting for close to 60% of the 3 mb/d total increase, while Saudi Arabia led the rise in OPEC+ supply as production cuts were unwound. The report then adds a conditional but crucial statement: barring significant sustained disruptions, and if OPEC+ stays the course with its current policy and U.S. shale activity avoids major downshifts, global oil supplies could rise by a further 2.5 mb/d in 2026. Put that beside demand growth of 930 kb/d and the existing inventory cushion, and you get the real implication: the market’s short-term fear premium can inflate, but it has to fight a large stored surplus before it becomes a sustained price regime.
One blunt sentence.
Inventories are the story.
The report’s demand line is deliberately modest and specific about composition. The improvement to 930 kb/d growth is linked to a normalisation of economic conditions after last year’s tariff turmoil and to lower oil prices than a year ago. There’s also a recovery in petrochemical feedstocks demand, partially offset by a continued slowdown in gasoline gains. That is a narrow kind of growth, and it matters because it suggests demand is not roaring across all end-uses. It is improving, but in a way that leaves the market still vulnerable to oversupply dynamics if production continues to expand as projected.
The supply side is where expectations can become misaligned. The report notes global oil supply fell by 350 kb/d month-on-month to 107.4 mb/d in December, 1.6 mb/d below September’s record high, due to lower output from Kazakhstan and some Middle Eastern OPEC producers, partly offset by a sharp rebound in Russian production. That line can tempt readers into thinking supply is tightening. But the forward projection immediately counters it: world supply is projected to rise to 108.7 mb/d in 2026, following an increase of 3 mb/d in 2025. The report also notes non-OPEC+ accounts for large gains across 2025 and 2026. The misalignment risk here is simple: market participants can overweight a month’s decline while ignoring the projected trajectory and the stored surplus behind it.
“This market can rally on disruption, but it is priced on surplus.”
Russia sits in an awkward, very reported position in this narrative. The report states Russian domestic refinery operations and exports rebounded sharply in December, with crude output up 550 kb/d month-on-month to a 33-month high despite continued attacks on energy infrastructure. Yet the report also notes widening discounts for Russian crude and refined products undermined monthly export revenues, assessed at around $11 billion, roughly half pre-invasion levels. The implication is not that Russia disappears from supply. It’s that Russia remains a large physical contributor while revenue dynamics become less supportive, and that tension can feed policy and export behavior without necessarily reducing barrels immediately.
Refining adds another layer that professionals often treat as secondary until it isn’t. The report notes global refinery crude throughputs surged by 2 mb/d to 85.7 mb/d in December ahead of 1Q26 seasonal maintenance across the United States, Europe, the Middle East and Asia. For 2026, crude runs are forecast to average 84.6 mb/d, with annual growth of 770 kb/d, slightly below 2025’s 930 kb/d pace. Refining margins slumped over December, led by weaker profitability in Europe as middle distillate cracks halved from November’s highs. This matters because it puts a ceiling on how enthusiastically refiners will pull crude, particularly when margins compress and maintenance removes capacity. It reinforces the report’s broader idea that the market has more cushion than urgency: crude availability can be high even if refining economics are not inviting.
The inventory details are unusually explicit and should not be read as mere background. OECD industry stocks were up by 7.3 mb to 2,838 mb, largely in line with the five-year average level. Total observed oil inventories were 433 mb higher than at the start of 2025, and preliminary data showed inventories rose further in December, led by product builds. The report highlights that November’s surge was mostly crude and mostly onshore, and that December builds were most notable in China after new import quotas were issued, offsetting declines observed in some Middle Eastern producer countries late in the year. This is what “buffer” means in practice: inventories are broad-based, not a single tank farm.
The geopolitical section reads like a volatility generator constrained by arithmetic. Iran and Venezuela introduce uncertainty about exports, Kazakhstan faces export curtailments, and yet the report repeats that bloated balances have kept prices in check. That line is not reassurance. It’s a reminder that the market currently has the ability to absorb shocks without repricing the entire structure, but it also implies a different kind of vulnerability: when the cushion is large, producers have more incentive to defend policy and pricing rather than rely on disruption to do the job for them.
This is where the report leaves the reader with a practical framing rather than a neat ending. If supply continues to expand and inventories remain elevated, prices can still jump on geopolitics but struggle to stay high without a sustained, meaningful disruption. If disruptions become sustained, the market’s first response is not panic but drawdowns. Only after that does the price regime need to change.
The uncomfortable part is that a well-supplied market can still be turbulent. The buffer reduces the probability of shortage, not the probability of violent swings.
By Anthony Adnan
