Oil market glut: surging output and sluggish demand pressure prices

This blog post is part of a special series based on the October 2025 Commodity Markets Outlook, a flagship report published by the World Bank. This series features concise summaries of commodity-specific sections extracted from the report. Explore the full report here

Oil prices rose by 5 percent toward the end of the month after new U.S. sanctions were announced on Russian oil companies, with Brent closing at about $65 per barrel (bbl) on October 29. Throughout 2025, oil prices declined due to ongoing trade policy tensions and concerns over excess supply, with occasional short-term increases in response to geopolitical events. The decline in Brent contributed to the Urals price falling below $60/bbl — the price cap in place since February 2025 — before a lower cap of $47.6/bbl was introduced in September.

Oil demand growth continues to weaken. Global oil demand is estimated to have increased by only 0.8 million barrels per day (mb/d), or 0.7 percent year-on-year, in 2025Q3, indicating continued sluggish growth relative to the 2015-19 average. This trend is expected to continue, resulting in an annual demand of 103.8 mb/d in 2025 and 104.5 mb/d in 2026. Oil consumption in advanced economies is projected to remain stable, whereas growth in China will likely moderate due to the accelerated adoption of electric and hybrid vehicles. Demand growth in India, one of the major contributors to global growth, is expected to be driven by liquefied petroleum gas (LPG), gasoline, naphtha and diesel.

Oil supply is projected to increase in 2025 and 2026 as new production comes online. Output for 2025 is anticipated to grow by 3.0 mb/d year-on-year (2.9 percent) to reach 106.1 mb/d, with an expected rise to 108.5 mb/d in 2026. In 2025, supply growth is expected to resume in the Middle East and North Africa, Afghanistan, and Pakistan (MNA), accelerate in Latin America and the Caribbean (LAC), and slow in advanced economies. Nearly half of the 2025 increase is attributable to OPEC+, reflecting higher production targets.

The combination of surging production and sluggish consumption growth is generating a global oil glut. The implied oil surplus (supply minus demand) is estimated to be 2.7 mb/d in 2025Q3, partially due to OPEC+ having raised its production targets several times since April. While observed inventory growth in 2025 reflected only about half of the implied surplus, recent market developments increasingly support the emergence of a global oil supply glut, as several crude oil cargoes in the Middle East have recently gone unsold, coinciding with a spike in the amount of oil in tankers at sea. On an annual basis, the International Energy Agency anticipates the surplus to be 2.3 mb/d in 2025 — rising to 4.0 mb/d in 2026 — 1.6 mb/d higher than the surplus in 2020 during the pandemic outbreak.

Risks to the oil price forecast are tilted to the downside. Brent oil prices are projected to average $68/bbl in 2025, decline to $60/bbl in 2026, and then rise to $65/bbl as market conditions stabilize. The most significant downside risk involves potential increases in OPEC+ production targets, while other downside risks include renewed trade tensions and heightened policy uncertainty. In terms of upside risk, prices could exceed baseline projections if the oil market is tighter than expected. This outcome may result from stronger-than-expected demand among major non-OECD consumers and limited supply growth due to OPEC+ constraints or reduced U.S. output. Furthermore, escalating conflict in regions such as the Middle East or Ukraine, along with the market impact of additional sanctions — including recent U.S. measures against Russian oil companies — could also drive prices above current forecasts.