The latest balance sheets from the three major institutions continue to point towards a supply surplus of between 2 and 3 million barrels per day by 2026. However, due to the current bifurcated structure of the oil market and China's persistent stockpiling demand, the surplus is primarily concentrated in sanctioned oil. The extent of inventory build-up for compliant oil remains to be seen. In the short term, tensions in the Middle East persist, with the United States continuing to deploy troops in the region. A potential strike against Iran appears imminent. Unlike Venezuela, Iran's critical geopolitical position means any conflict could impact surrounding major oil producers and the Strait of Hormuz, making oil prices far more sensitive to Iranian developments.
On the demand side, the EIA has revised its 2026 global demand growth forecast down by 100,000 barrels per day to 1.14 million barrels per day. China's demand is projected to grow by 210,000 bpd, India's by 290,000 bpd, and other Asia-Pacific nations (excluding China, Japan, and India) by 260,000 bpd. US demand growth is expected to be flat, while the Middle East, Africa, and Latin America are forecast to see increases of 60,000 bpd, 200,000 bpd, and 150,000 bpd, respectively. OPEC maintains its forecast for 2026 global demand growth at 1.38 million bpd, essentially unchanged from last month. OPEC projects India's demand to grow by 220,000 bpd, China's by 190,000 bpd, the Middle East's by 160,000 bpd, Latin America's by 130,000 bpd, and Africa's by 160,000 bpd. We consider OPEC's demand forecast to be on the high side. The IEA, meanwhile, has revised its 2026 demand growth estimate up by 70,000 bpd to 930,000 bpd. China and India are each expected to contribute an 180,000 bpd increase, while Japan's demand is forecast to decline by 30,000 bpd. All demand growth is primarily attributed to developing nations.
For non-OPEC supply, the EIA expects a year-on-year increase of 1.19 million bpd in 2026 (including NGLs), an upward revision of 60,000 bpd from last month. This includes a 260,000 bpd increase from the US (revised up by 100,000 bpd), 70,000 bpd from Canada, 380,000 bpd from Brazil, 60,000 bpd from Africa, 30,000 bpd from Norway, and 130,000 bpd from the Former Soviet Union region. OPEC's monthly report projects supply from non-OPEC+ nations to grow by 630,000 bpd in 2026, unchanged from last month's estimate. This includes a 100,000 bpd increase from the US and a 430,000 bpd rise from Latin America; as this excludes OPEC+ members like Kazakhstan, the supply growth estimate is relatively conservative. The IEA forecasts non-OPEC supply (including NGLs) to grow by 1.21 million bpd year-on-year in 2026, a downward revision of 30,000 bpd. Contributions include the US (+300,000 bpd), Canada (+60,000 bpd), Norway (+90,000 bpd), Brazil (+300,000 bpd), Kazakhstan (-100,000 bpd), and Mexico (-100,000 bpd).
Regarding OPEC production, EIA figures show December output increased by 120,000 bpd month-on-month to 28.80 million bpd, up 1.62 million bpd year-on-year, with the increase primarily from Saudi Arabia. According to OPEC's own data, production in December was 28.56 million bpd, up 110,000 bpd from November and 1.87 million bpd year-on-year. Supply from non-OPEC participants in the production cut agreement was 14.27 million bpd in December, a decrease of 350,000 bpd from the previous month. The IEA reported December OPEC production at 28.82 million bpd, down 340,000 bpd from November but up 1.37 million bpd year-on-year.
The EIA's projection for the 2026 supply-demand gap is a surplus of 2.80 million bpd, an upward revision of 600,000 bpd from last month. Its forecast for the 2026 Call on OPEC is 25.10 million bpd, revised down by 600,000 bpd. OPEC's full-year 2026 CODC forecast remains unchanged at 42.94 million bpd. The IEA's Call on OPEC projection for 2026 is 25.78 million bpd, revised up by 140,000 bpd from the previous estimate.
The oil price is expected to fluctuate within a range in the short term, while a medium-term bearish allocation is advised.
Downside risks include a potential Russia-Ukraine peace agreement and macro black swan events. Upside risks involve a tightening of supply from sanctioned oil (Russia, Iran, Venezuela) and large-scale supply disruptions resulting from Middle East conflicts.
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