IEA Cuts 2025 Oil Demand Outlook as Supply Growth Accelerates

Global oil markets are navigating a delicate balance between record-high refining activity, swelling inventories, and weaker-than-expected demand growth, according to the International Energy Agency’s (IEA) Oil Market Report for August 2025. The agency projects global oil demand will rise by 680Mb/d  in 2025 and 700Mb/d in 2026, reaching 104.4MMb/d. That forecast marks a cumulative downgrade of 350Mb/d since the start of the year, reflecting lackluster consumption across major economies and softer growth in emerging markets.

While the OECD saw flat consumption in the second quarter, dragged down by Japan’s multi-decade demand lows, all of the 600Mb/d year-on-year growth in 2Q25 came from non-OECD economies. Even so, China, India, and Brazil all performed below expectations in recent months, with revisions pulling their projected 2025 demand lower.

Aviation was the standout sector. Robust summer travel propelled jet fuel demand to record highs in both the United States and Europe, with global jet/kerosene consumption expected to grow by 2.1% this year, the strongest rate among refined products. However, at 7.7MMb/d, it will remain about 180Mb/d below 2019 pre-pandemic levels.

Supply Dynamics Shift as OPEC+ Unwinds Cuts

On the supply side, global oil production held steady in July at 105.6MMb/d, with a 230Mb/d drop from OPEC+ offset by equivalent gains from non-OPEC+ producers. OPEC+ announced in early August that it will fully unwind its 2.2MMb/d voluntary output cuts by September, adding 547Mb/d next month. This move, combined with higher September targets, has prompted the IEA to revise up global supply growth by 370Mb/d to 2.5MMb/d in 2025 and by 620Mb/d to 1.9MMb/d in 2026.

Despite the sizable OPEC+ increase, non-OPEC+ producers will continue to lead output gains, adding 1.3MMb/d this year and 1MMb/d next year, driven by US natural gas liquids (NGLs), Canadian crude, and offshore production from the United States, Brazil and Guyana.

Refining Activity Hits All-Time High

Refinery runs are absorbing much of the additional crude. Global crude throughputs are set to reach a record 85.6MMb/d in August, with third-quarter annual growth of 1.6MMb/d far outpacing the 130Mb/d average increase seen in the first half of the year.

The IEA has raised its forecast for 2025 crude runs to 83.6MMb/d, up 670Mb/d year-on-year, supported by stronger-than-expected data from the OECD and China, as well as robust refining margins. Margins soared to 15-month highs in July, buoyed by tight product markets.

Inventories Build, OECD Stocks Stay Tight

Global observed oil inventories rose for the fifth straight month in June, adding 28.1MMb to reach 7,836MMb, a 46-month high. Much of the build came from higher “oil on water” volumes and rising stocks of Chinese crude and US gas liquids.

However, OECD industry stocks fell by 28.8MMb in June to 2,758MMb, near decade lows and 88MMb below last year’s levels. Crude and product stocks in major pricing hubs also remain well below historical averages, underscoring ongoing tightness in certain market segments despite headline stock builds.

In the second quarter, global inventories expanded at 1.5MMb/d, with China’s crude holdings and US gas liquids each increasing by around 900Mb/d.

Prices Hold, Then Slip on OPEC+ Supply Move

Benchmark crude prices were broadly stable in July, with North Sea Dated crude oscillating around $70/b as easing trade tensions and tighter sanctions on Russia offset expectations for ample supply. Volatility in Brent futures fell to near record lows.

That stability faltered in early August after OPEC+ announced its full cut unwinding. Brent futures fell by $3/b to around $67/b, with the prospect of heavier stock builds later in the year weighing on sentiment.

Mexico Output, Refining Trends

In Mexico, official IEA data shows crude supply of 1.46MMb/d in June and 1.47MMb/d in July, compared with an estimated sustainable capacity of 1.59MMb/d. Effective spare capacity stood at 120Mb/d in July.

According to state oil company PEMEX, national crude output averaged 1.366MMb/d in June 2025, a 9.2% decline from the 1.504MMb/d recorded in June 2024. On the downstream side, crude processing reached 987Mb/d, an increase of 10.9% from the second quarter of 2024 and up 5.4% from the first quarter of this year. The higher throughput reflects continued operational stability across the National Refining System and the operation of two distillation trains at the Olmeca refinery.