Oil prices fell after the International Energy Agency raised its forecast for a record global oil surplus next year, predicting supply will exceed demand by nearly four million barrels per day in 2026. The latest outlook highlights growing concerns over potential oversupply and renewed uncertainty for producers.
BNN Bloomberg spoke with Rory Johnston, founder of Commodity Context, about why he believes the IEA’s forecast is unlikely to materialize, how OPEC+ could respond to mounting supply pressures, and what lower prices might mean for the U.S. shale sector.
Key Takeaways
- The International Energy Agency now projects a record oil surplus of four million barrels per day in 2026.
- That figure marks an increase from 3.3 million barrels forecast last month and exceeds the surplus seen during the 2020 pandemic downturn.
- The scenario assumes OPEC keeps production steady, which could result in nearly 1.5 billion barrels of stock builds over the year.
- Rory Johnston says the IEA’s forecast is unlikely to occur, noting OPEC+ would likely cut production if prices fall too far.
- A prolonged downturn could force a slowdown in U.S. shale output, the fastest-adjusting source of global supply.
Read the full transcript below:
LINDSAY: Oil prices fell after the International Energy Agency raised its forecast for a record global oil surplus in 2026, expecting supply to exceed demand by almost four million barrels a day. Let’s get more on this from Rory Johnston, founder of Commodity Context. Good to have you, thanks for taking the time.
RORY: Thanks for having me.
LINDSAY: Can you explain exactly what the International Energy Agency is doing? Why did they raise that estimate?
RORY: The first thing to note is this forecast assumes OPEC+ keeps production flat around current levels, while everything else continues dynamically. The surplus for next year has continued to swell, report after report, as OPEC+ signals more production increases.
This latest October publication now estimates about four million barrels a day of oversupply on average through next year, up from 3.3 million barrels a day in the last report. To put that in perspective, it would be the largest annual surplus on record — almost twice the size of the surplus realized in 2020 during the depths of the COVID-19 lockdowns.
That’s not a trivial number. And given that it assumes OPEC+ keeps production flat, I don’t believe the IEA itself expects this scenario to actually occur. Instead, it’s more useful as a way of illustrating how much supply would need to be cut to balance markets — roughly four million barrels a day, or about four to five per cent of global production.
LINDSAY: It sounds like you don’t expect this forecast to be realized either.
RORY: That’s correct. To put it in context, a four million barrel-a-day surplus on average would translate to roughly one and a half billion barrels of inventory builds next year. That’s almost equivalent to the entire current volume of U.S. petroleum inventories — added in just one year.
That would push prices far too low. I think that’s what will happen initially — prices will fall until they push non-OPEC supply out of the market. Given that U.S. shale is the fastest-reacting production source globally, we’d likely see reductions there first.
But even during COVID, we didn’t lose four million barrels a day of U.S. production because OPEC stepped in. To reach that level of correction, prices would need to stay very low for a prolonged period. The question is whether OPEC, particularly Saudi Arabia, would tolerate that.
More likely, OPEC will eventually pause or reverse its recent production hikes once prices weaken. While the group appears less focused on defending higher prices than in past years, we don’t yet know its lower pain threshold. It’s easy to boost production when prices are in the US$60s or US$70s — but will they keep doing that with WTI in the US$50s and falling?
LINDSAY: So is that what needs to happen? Should we stop focusing on the long term and instead look more short term?
RORY: I think both matter. There’s a longer-term debate about when global oil demand will peak — whether in the late 2020s, early 2030s or possibly never. But the near-term transition is more pressing.
We’re shifting from a period of persistent undersupply between 2021 and 2024 to likely oversupply in 2025 and 2026. Demand growth has slowed from its pre-COVID pace, so supply will need to adjust accordingly to keep the market balanced.
LINDSAY: Are there other factors affecting oil prices beyond supply and demand, like tensions between the U.S. and China or other geopolitical risks?
RORY: Supply and demand drive the medium and long term, but sentiment and geopolitics can dominate in the short term. Two examples stand out.
First, Chinese policymakers are acutely aware of their energy security and have been rapidly building their strategic reserves. At times this year, those additions have reached almost one million barrels a day, which the market registers as demand. That’s helping support prices in the near term.
Second, repeated geopolitical flare-ups, particularly in the Middle East, have made traders wary of going too short on crude. The risk of another conflict or sanctions announcement keeps investors cautious — they don’t want to be caught offside by a sudden price spike.
LINDSAY: Before we wrap up, how does this affect Canadian oil producers? Is there still room for Canada to grow production?
RORY: While lower prices will weigh on Western Canadian producers in the near term, Canada can still compete in a lower-price world — provided there’s sufficient access to markets. That means expanding pipeline capacity, ideally to the West Coast.
There’s also renewed talk in the Carney-Trump discussions about reviving the long-dead Keystone XL pipeline. But ultimately, any additional export route would help. Producers need reliable egress if they’re going to take the risk of increasing output in an uncertain environment.
LINDSAY: Rory Johnston, founder of Commodity Context. Thanks for joining us.
This BNN Bloomberg summary and transcript of the Oct. 15, 2025 interview with Rory Johnston are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
