According to the International Energy Agency’s (IEA’s) July 2025 ‘Oil Market Report’, global oil demand is forecast to rise by 700 000 bbl/d this year, marking its lowest increase since 2009, excluding the exceptional decline during the 2020 Covid-19 year.

Demand growth eased by 1.1-million barrels a day in the first quarter and by 550 000 bbl/d in the second quarter, with emerging market consumption particularly weak. The IEA projects that global oil demand will increase by 720 000 bbl/d in 2026, reaching 104.4-million barrels a day.

In contrast to tepid demand, global oil supply surged. In June, output rose by 950 000 bbl/d month-on-month to 105.6-million barrels a day, led by Saudi Arabia. This figure was 2.9-million-barrels-a-day higher year-on-year, with the Organization of the Petroleum Exporting Countries (OPEC) and several non-OPEC oil-producing nations (OPEC+) contributing 1.9-million barrels a day to that yearly growth.

World oil supply is forecast to grow by 2.1-million barrels a day in 2025, reaching 105.1-million barrels a day for the year, and by a further 1.3-million barrels a day in 2026. Non-OPEC+ producers are expected to drive this growth, adding 1.4-million barrels a day in 2025 and 940 000 bbl/d in 2026.

Refinery activity is also accelerating. Following a 1.7-million-barrel-a-day increase in June, global refinery runs are set to rise by another two-million barrels a day over July and August, reaching a seasonal peak of 85.4-million barrels a day. The IEA expects runs to average 83.3-million barrels a day in 2025 and 83.8-million barrels a day in 2026, increasing by 500 000 bbl/d and 460 000 bbl/d respectively.

Refining margins softened in June owing to rising crude prices but recovered to multi-month highs in early July, supported by stronger diesel cracks, the IEA reported.

Observed oil inventories jumped by 73.9-million barrels in May to 7.818-billion barrels, led by Organisation for Economic Cooperation and Development (OECD) commercial product inventories and crude in non-OECD countries.

Crude, natural gas liquids and feedstocks increased for a fourth consecutive month, by 49.7-million barrels, largely owing to a sharp rise in China. Oil product inventories also rose for the first time this year, gaining 24.2-million barrels. Preliminary data suggests that global stocks continued rising in June, especially in oil on water and non-OECD regions.

Benchmark crude prices also climbed. North Sea dated crude rose by $7/bl month-on-month to an average of $71.35/bl in June, trading within a $65/bl to $80/bl range.

Air strikes mid-month by Israel on Iranian military and nuclear targets briefly pushed prices above $80/bl, before falling back after a ceasefire. By early July, North Sea Dated crude was trading just above $72/bl, down $15/bl compared with a year earlier.

The IEA noted that the escalation in geopolitical tensions came amid an already oversupplied market.

On 5 July, the OPEC+ alliance announced a larger-than-expected increase in production targets for August of 550 000 bbl/d, effectively unwinding 80% of the voluntary 2.2-million barrels a day cuts that had been in place since 2023. Reports suggest the group could replicate this increase in September, fully restoring supply a year ahead of schedule.

These significant supply increases stand in contrast to the relatively modest expected demand growth of 700 000 bbl/d this year and 720 000 bbl/d in 2026. However, seasonal demand for northern hemisphere summer travel is boosting crude runs by 3.7-million barrels a day between May and August.

Additionally, crude burning for power generation typically doubles during this period to around 900 000 bbl/d, tightening short-term market balances.

Despite the implied surplus, price signals indicate a tighter physical oil market. Prompt time spreads are in steep backwardation, and refinery margins remain strong, even as implied stock builds averaged 1.74-million barrels a day in the second quarter of this year.

Yet, these builds are not evenly distributed. The IEA reported that US gas liquids inventories rose by 79-million barrels in the second quarter, driven by strong domestic NGL output and a temporary slowdown in ethane exports owing to new export licence requirements.

Meanwhile, China’s crude oil inventories surged by 82-million barrels, or nearly 900 000 bbl/d.

China’s energy security strategy has seen oil companies become long-term strategic storage partners for the government, effectively removing these barrels from the global supply chain.

According to the IEA, Chinese companies are expected to continue expanding their inventories, and the pace of stock building in the coming months will be a critical factor in shaping the global oil market balance.