The International Energy Agency’s (IEA) latest October Oil Market Report and a 17 October commentary have drawn market attention after projecting that the world oil market will face a larger surplus next year, while demand growth continues to slow.
The agency estimated an average surplus of 1.9 million bpd from January to September, signalling a potential turning point for commodities traders as rising supply and softer consumption reshape energy market expectations.
The IEA expects global oil demand to plateau before 2030, as renewable adoption and transport electrification continue to reshape energy consumption patterns. Brent crude has hovered near US$66/bbl and WTI around US$61, with prices holding relatively steady through October as optimism over a potential US–China trade deal supports demand sentiment.
Surplus outlook shifts market balance
The IEA expects non-OPEC producers, particularly the US, Brazil, and Guyana, to drive much of the projected output increase in 2026, outpacing demand growth for the first time in several years.
“Commodities are an expansive basket. They have a multitude of inputs that can affect different sectors in different ways,” said David Barrett, CEO of EBC Financial Group (UK) Ltd. “With the existing backdrop in mind, markets should keep an eye on five key dynamics: geopolitical events, political interference, global demand, inventory levels, and market positioning. Each has the potential to redefine short-term price behaviour and long-term balance.”
He added that traders should watch how inventories build in early 2026, as this could flatten futures curves and increase volatility across energy-linked assets, and that the environment reinforces the importance of hedging and liquidity strategies, particularly as inventories rise and speculative positions build.
Geopolitical conflicts keep volatility elevated
While fundamentals suggest easing tightness, geopolitical uncertainty continues to cloud the outlook.
“The globalisation of markets has made one part of the chain only as strong as the others,” Barrett explained. “The past decade — from the Global Financial Crisis to Covid, the Suez Canal blockage, and ongoing conflicts in Ukraine, Iran, and Gaza — shows how quickly supply chains can fracture. None of these shocks were predicted, yet all forced markets to adapt through rerouted trade flows or new logistical solutions.”
He added, “Political interference, particularly the weaponisation of trade and rare commodities, has become a defining factor in how markets rebalance. Tariffs are a blunt tool, but they’ve become a political instrument that can shift prices overnight.”
Broader commodity implications
An extended period of oil surplus could trigger cross-commodity ripple effects, influencing inflation expectations, logistics costs, and investment sentiment across sectors. Lower energy prices typically ease cost pressures for manufacturing and transport, though continued instability could blunt these gains.
“Global demand dynamics are deeply intertwined with politics and geopolitics,” Barrett observed. “A slowdown in demand can just as easily create new political friction as much as it can result from that friction. Any shift in energy prices can cascade into metals, agriculture, and even freight rates.”
He cautioned that traders should expect sentiment and positioning to play a larger role in 4Q25 and 1Q26. “When participation becomes saturated — when everyone’s on the same side of the trade — you can get outsized and violent repricing. That’s where discipline and risk management become critical.”
Looking ahead: data over direction
The IEA’s outlook reinforces the need for data-driven positioning in a market defined by competing forces — oversupply on one side and unpredictable geopolitical risk on the other.
“The complexity and interlinked nature of commodities mean there’s rarely a single driver,” Barrett concluded. “Traders will need to constantly reassess exposure as markets shift between surplus, disruption, and political recalibration.”
The months ahead will test whether the energy market’s next phase is defined by structural surplus or political disruption — and how quickly traders adapt their exposure to this shifting equilibrium.