The International Energy Agency (IEA) is signaling a stronger-than-expected outlook for global oil demand in 2025 and 2026, even as supply constraints, refinery disruptions, and geopolitical pressures create significant volatility across the market.

The Agency’s December 2025 Oil Market Report (OMR) outlines a complex energy landscape defined by rising petrochemical consumption, sharp drops in supply from sanctioned producers, and refined product markets that remain tighter than anticipated.

The IEA has significantly upgraded its projections for global demand in 2026, reflecting a more optimistic global economic environment and stronger trade flows.

According to the report, “These brighter prospects extend to our 2026 forecast, which we have upgraded by 90 kb/d, to 860 kb/d y-o-y.”

For 2025, demand is projected to grow by 830,000 barrels per day, supported by an improving macroeconomic backdrop. Fuels such as gasoil and jet fuel continue to drive much of the growth, together accounting for half of the year’s gains as industrial activity and aviation steadily expand.

But the most notable shift emerges in the structural composition of demand. The IEA highlights that petrochemical feedstocks are becoming the dominant driver of consumption.

The report states, “In 2026 petrochemical feedstocks will dominate growth, with their share rising to more than 60% from 40% in 2025,” underscoring how plastics, chemicals, and industrial materials are reshaping long-term demand patterns globally.

Supply Drops Sharply as Sanctions Hit Russia and Venezuela

While demand strengthens, global oil supply is facing fresh disruptions. The IEA reports that production declined by 610,000 barrels per day in November, extending a broader falloff that began earlier in the year. “OPEC+ accounted for over three-quarters of the total decrease, led by sanctions-hit Russia and Venezuela,” the report notes.

Russia has been the hardest hit, with exports dropping by 420,000 barrels per day in November alone. Weak prices compounded the effect, slashing Moscow’s oil revenues to $11 billion, a steep fall of $3.6 billion from the same period a year earlier.

These supply pressures have prompted the IEA to revise its growth estimates downward. Global supply growth for 2025 has been cut by 100,000 barrels per day, bringing expected output to 106.2 million barrels per day.

The 2026 forecast has been trimmed slightly to 108.6 million barrels per day, representing an increase of 2.4 million barrels but still constrained by geopolitical headwinds.

Even though refinery operations suffered notable unplanned outages in November, the IEA suggests that some of the tightness seen earlier in the year has eased.

However, new sanctions set to take effect in the first quarter of 2026 are expected to renew pressure on product markets, especially in diesel and jet fuel segments.

The Agency highlights a widening disconnect between crude supply and refined product availability.

“The stark contrast between surging crude supplies and unexpectedly tight product markets has pushed refinery margins back to levels last seen in the aftermath of Russia’s invasion of Ukraine.”
IEA Oil Market Report-December 2025

As a result, the IEA has revised its refining throughput forecast upward, projecting average daily runs of 84.4 million barrels per day in 2026, supported by a robust 750,000-barrel-per-day expansion.

Oil Inventories Climb to Four-Year Highs

Despite tighter product markets, global inventories are rising at a rapid pace. The IEA reports that “Global observed inventories rose to four-year highs in October, at 8 030 mb,” reflecting persistent stock builds, particularly in non-OECD countries.

Inventories increased by 42 million barrels in October, with most of the surge attributed to an jump in oil on water, which rose by an extraordinary 83 million barrels. In contrast, on-land stocks fell by 41 million barrels, led by a significant contraction of 26 million barrels in OECD regions.

Preliminary November data suggests that total stocks rose further, driven mainly by non-OECD on-land crude accumulation, indicating a continued mismatch between production flows and consumption patterns.

Market prices have been surprisingly muted despite the supply disruptions. The IEA notes that North Sea Dated crude slipped for a fifth straight month, falling by about $1 per barrel to $63.63 in November, its longest losing streak in more than a decade.

The report attributes the subdued pricing to a combination of “near-record oil on water, soft crude fundamentals and low volatility,” factors that collectively pinned prices near four-year lows. Even strong diesel cracks and tightening sanctions were not enough to reverse the downward momentum.