Oil Prices Drop 4% as OPEC, IEA Warn of Oversupply and Weak Oil Demand

The report showed an increase in output from the non-OPEC+ alliance. It is expected to increase by 920,000 barrels per day this year and by 630,000 barrels per day in 2025.

Oil prices decreased significantly on Wednesday, as new data indicated an oversupply of oil. OPEC, a group of major oil-producing companies, released its latest monthly oil market report, changing its previous outlook.  Previously, the group expected a supply deficit of oil, but now expects a balanced market in 2026.

This new outlook is due to the rise in oil production from non-OPEC countries and the increase in global oil inventories.

Despite a change in the forecast, OPEC still expects that oil demand will grow steadily, expecting global oil use to increase by 1.3 million barrels per day in 2025 and by 1.38 million barrels per day in 2026. These figures are due to the expectations of continuous international economic growth. However, the group now estimates that supply will be more than demand by 500,000 barrels per day in the third quarter, after increasing its forecast for total US oil production. Earlier, OPEC had forecast a deficit of 400,000 barrels per day.

The report showed an increase in output from producers outside the OPEC+ alliance. It is expected to increase by 920,000 barrels per day this year and by 630,000 barrels per day in 2025. The increase in supply is mainly due to the United States, Canada, Brazil, and Argentina.

Due to high production from the non-OPEC producers, global oil inventories have started expanding since the start of the year.

OPEC countries have seen their stocks increase due to higher imports, while non-OECD countries, particularly China, have seen an increase in oil being stored temporarily on ships around the world, which adds to the overall supply of oil in the global market.

These changes in the oil market are making crude oil sellers struggle to find buyers, which is a clear sign of oversupply in the market. Due to this, the oil prices are adjusting to reflect the excessive supply, with the US economy showing weakness, leading to further reduced demand and a drop in prices.

At the same time, the International Energy Agency (IEA) published its annual World Energy Outlook. It is projected that global demand for oil and gas is expected to continue increasing until 2050. This shows a significant shift from last year’s forecast, which projected that demand for fossil fuels would reach its highest before 2030, as the agency is focusing more on actual trends rather than government-related climate pledges.

Recent market indicators from the oil market have raised concerns about excess supply and weakening demand. The oil market was showing signs of a shift towards contango. It is a state where oil prices for prompt delivery are lower than for future deliveries.

This pattern typically shows that the market is oversupplied or there is an expectation of lower demand in the future. Market analysts note that the global economy is showing signs of strain, with ongoing trade tensions and uncertainties in China. Meanwhile, OPEC oil supplies are building up, with floating storage in Asian waters, and US oil production is expected to reach new records of high crude production, according to the latest government data.

On Wednesday, oil prices declined as Nymex crude for December delivery closed at $58.49 per barrel, down 4.2% and Brent crude for January closed at $62.71 per barrel, a 3.7% decline.

Both benchmark reached their lowest in three weeks and experienced their largest single-day loss since October.

The price of oil declined by more than $2 a barrel as the market reacted to OPEC’s latest forecast that global oil supply and demand will be in balance next year, a shift from their previous expectation of a future supply shortfall.