The Global Oil Market Isn’t Oversupplied, It’s Being Misread
In this episode of India Energy Week, Govindraj Ethiraj speaks with energy expert Anas Alhaji on why IEA forecasts, shifting trade routes and geopolitics are masking tighter-than-expected oil market conditions.
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Dr. Alhajji, good morning to you in Texas from Mumbai. So before I dive into where oil prices could go in 2026, let me start with the latest International Energy Agency report, which I'm sure you will have some quarrel with. But essentially it says that the world oil market is going to be in deep surplus in the first quarter of 2026.
Now, that's what the IE says, but let me frame my question as follows. The U.S. attacked Venezuela ostensibly to pump more oil from that country, though it is not in a position to pump much more, but maybe in future it will. On the other hand, prices are steady now in the 60 to $65 range.
And finally, on the supply side, whether IEA's projections are optimistic or otherwise, there seems to be a fairly strong supply push in 2026. So how are you seeing the combination of all of this?
If you look at the IEA forecasts, they've been for growth in oil demand, they've been wrong every year for the last 18 years. They underestimated demand for 18 years. So why do we have to believe them now?
The fact is, we've been told since last year that we are going to have serious problems in the fourth quarter of 2025. They told us that there will be a massive surplus in the fourth quarter of 2025. They told us that there is massive amount of oil and water.
None of that materialised. In fact, we debunked all of that in all our reports. Basically, we have detailed reports where we debunked all of that early, way early.
We told them, look, this is not the case. And we've been proven right that prices remained in the 60s for Brent. They did not decline to the 40s.
Remember, they've been telling us since April 2025 that oil prices will go to the 40s. They did not. Simply because they kept telling us about the surplus, about the extra oil that's coming to the market when they told us about the oil and water and the amount of oil and water.
They, most of it basically was completely misunderstood. I'm going to give your audience just an example how these things work. They told us that there is a massive amount or massive increase in oil and water.
And that will lead to a large increase in inventories and that will lead to lower prices. Look at Brazil. Brazil exports declined.
That is a reduction in supply. But we've seen a large shift in exports from the United States and Europe to China. And the distance between Brazil and China is triple that of the United States and triple that to Europe, which means that there is more oil and water because of the long distance, but the supply is less.
So there is no way we are going to have additional supply while the supply is lower. So people misunderstood all those little details that were important to the market. People misunderstood a couple of things too.
We have recently, or of course that's been almost a year now, but we have the pipeline from Canada going to the West. That oil was going through pipelines in the United States and was not counted as oil and water. Now we have a pipeline and the amount of oil going through the pipeline is increasing and that oil is going to China.
All of a sudden we went from zero to 400,000 barrels a day. And they are saying, look, there is an increase in oil and water. Well, that's a shift.
That's not an increase in supply. Then as you know, Iraqi oil supplies from the North to the Jehan port in Turkey stopped since March, 2023. They resolved that issue.
Now we have about 200,000 barrels a day going through the Jehan port on water. And those guys who are telling us about the surplus, they are counting that as extra supply. It wasn't.
So we have all kinds of exaggeration in this case. Now the IEA is telling us, oh, we are going to have this massive surplus in 2026. And it's going to be in the first quarter.
We are in the first quarter. Where is that surplus? And you look at Kazakhstan today, the exports of Kazakhstan dropped like a rock.
And of course, probably your audience would be interested in hearing this. Why did Kazakhstan exports decline? Well, Kazakhstan exports its oil through what we call the CPC terminal.
The CPC terminal is a Russian terminal. So here is the sequence of events. All of a sudden, Russia exports some oil out of that terminal too.
Russia stops exporting through that terminal. And after a couple of weeks, when they stopped completely, the terminal was attacked, supposedly by Ukrainian drones. And then we had a processing facility on the Russian part of the border next to the oil field in Kazakhstan that was attacked too.
And all of a sudden, Kazakhstan has no outlet. And then three tankers were coming to the port to load Kazakhstan crude. The three tankers were attacked.
What is Ukraine's interest in bombing those? And Ukraine problem is with Russia, not with Kazakhstan. Russia was not affected.
Kazakhstan was affected. So who is doing the attacks? And then you ask the question, who is the biggest loser from the decline in Kazakhstan exports?
Chevron. The American company Chevron. All right.
Well, why this happened?
Absolutely.
Anas Alhaji
It happened immediately after what happened in Venezuela. It's the only company that is operating in Venezuela. And then you have the threat from the Trump administration to the Russian company operating in Venezuela.
And the only company that can take over that Russian company is Chevron. So in a sense, Russia is playing it silently. But the idea, go back to the idea of surplus, we don't have this historic surplus.
Whatever surplus we are going to have, it's just the normal seasonal surplus.
Right. So the figure that's being offered, and I'll move on quickly from that, is about 4.25 million barrels a day or 4% of demand. So what you're saying is really that supply and demand are fairly well balanced right now?
Absolutely. We are going to end up just with the usual build in inventories, the seasonal one. But here is one thing to think about.
They are talking about four million barrels a day of surplus, right? Yeah. We don't have enough storage around the world for all of that.
So if there is no storage, then people aren't going to buy it. So where did the surplus?
Right, okay.
So, go ahead.
Yeah, I'm going to come back to that in a moment. But just to sort of put things in perspective and go back to December when the US attacked Venezuela, extracted its president and took him and his wife to New York to charge him and then put him on trial. Now, all of that was supposed to lead to something.
My first question really is what has that or is that leading to? And second question as a follow up to that is what is happening around the world right now in the context of the dynamics of oil supply and demand? Or let me open that up a little more, energy supply and demand.
So this is a slightly broader question.
Okay, I will go to Venezuela in just a minute, but I want to touch on what we talked about and your second question at once. We have in the United States, US crude oil production been increasing in the first 10 months of the year. So we have an increase in US oil production.
That's supposed to be bearish, that's supposed to cause a surplus. But what the IEA and the major banks like Goldman Sachs are missing is that at the same time, the United States was locking up oil in the strategic petroleum reserves. And they are counting this amount, which is by the way, larger than the increase in US oil production.
So what they locked up in the strategic petroleum reserve is more than the increase in US oil production. The problem is they are counting the US increase in oil production as a surplus, and they are counting the build in the SPR as a surplus while it is demand. So that's another problem, another mistake.
This is not a surplus, this is oil that is locked up. It's not going to be in the market. The same thing for China.
The increase in inventory since the beginning of 2025 is highly concentrated. And most of it is in China. And the decision by China basically to build this inventory is strategic.
It's not market based. And therefore it is similar, although it's commercial stock, but it is similar to the SPR. And yet the IEA and the major banks are counting it as a surplus.
So that is a big problem. Therefore, the way we look at it is the market is almost balanced. We have seasonal built in inventories.
We expect the Brent prices to be range bound in the 60s. There is no reason to be bearish. But once we go above 70 for any reason, China is going to use some of its inventories basically to prevent prices from going up.
And therefore prices are range bound in the 60s. To go back to Venezuela. There are many conspiracy theories, as you know, about Venezuela.
What does Trump want from Venezuela? He talked about Venezuela and oil a lot. And people been saying, look, he wants to control the 300 billion barrels of reserves in Venezuela.
But if you look at his statements, and you put the story in its right sequence, you find he is not after oil. He is after the money. These are completely different issues.
And the reason why, because when Chavez came to power, he changed the constitution and nationalised the oil assets. And American companies lost billions of dollars. He's supposed to compensate.
The Venezuelan government did not compensate. So they still owe American companies tens of billions of dollars. What Trump is saying, saying, look, I need my money.
But you are bankrupt. And if you are bankrupt, you have nothing else to give me except your oil. So I'm going to control that oil.
I'm going to control it and sell it so I can get my money back. That's the story about the Venezuelan government. But here is the problem.
Because of the sanctions, legally, no one can buy Venezuelan oil. So the legal manoeuvre is for the Trump administration to take it and sell it because it become legal if people buy it from the United States. So they can circumvent the sanctions.
Meanwhile, because of the sanctions, that discount, the big discount that China and others been getting will disappear. So they can sell it at a higher price in this case. So it is a legal manoeuvre to work around the sanctions because they don't want to lift the sanctions.
The sanction is a foreign policy tool basically to pressure the current regime now so they don't want to lift it. So this is a way to work around it. Ironically, what we see today from the Trump administration is a copy of the oil for food deal that was implemented on Iraq in the 90s by the Clinton administration.
Just Trump basically pulled it from the past and applied to Venezuela. It's exactly a copy of it.
Right, okay, let me, you know, I read one of the oil company CEO saying that, you know, if oil prices go down to let's say $50 a barrel, which is what the Trump administration seems to be wanting, it is not going to be economical to pump oil. So there seems to be a contradiction in all of this. I mean, the prices that Trump or the US administration desires versus what it is economically viable to produce in the context of the demand supply dynamics that you've already outlined.
Absolutely. The policies are not intended to be coherent anyway. So yes, Trump is obsessed with the idea of low oil prices, low gasoline prices.
And what we know from Trump's history is that if he is given several choices, and one of them is low oil prices, he will always choose low oil prices. The problem is he cannot have it both ways, okay? And the oil companies, whether in the United States or other places, they are not going to invest billions of dollars just to flood the market.
And that's another conspiracy theory, basically, just to flood the market and lose their billions. They are not going to do that. And by the way, regarding this theory, it does not make any sense.
And the reason why, because yes, the potential for increasing production in Venezuela is large, and we've seen it before. Their production was more than 3 million barrels a day. Now they are producing about 900, 900,000.
But until we increase production in Venezuela substantially, it takes years. So I'm going to give you an example for your audience so they can realise what's going on. To increase production by 1 million barrels a day, assuming all the stars are aligned and everything is good, it will take three years to increase production by 1 million barrels a day.
And three years from now, global oil demand would increase between 2 to 4 million barrels a day. While decline rates in the fields because of depletion is going to be between 10 to 12 million barrels a day. So I am short already, three years from now, I am short about 15 million barrels a day.
So this is a welcome addition by that time. So it's not going to flood the market. It's not going to reduce prices.
Even if we go for 2 and 3 million barrels a day, demand is going to continue to increase and the depletion rates basically are high enough. We always need more investment, whether in Venezuela or others. The final point on this is, to increase production by 1 million barrels a day, we need at least, this year, we need at least $20 billion right now.
So where that money is going to come from? If you look at the history of the oil companies, we see that they are going to transfer this money from somewhere else. So instead of producing in Brazil or Guyana or in the Permian in the United States or in Nigeria, they are going to invest in Venezuela.
So by the time Venezuelan production comes online, this is going to be at the expense of all that would have come from somewhere else. So it's not really a net addition anyway.
Right. Okay, if I were to bring you from the Americas to my part of the world, Asia and the Middle East, how is your, or rather, what is your outlook for 2026 as we go into the year? How are you seeing shifts?
You know, the last time I spoke to you, I had asked you about Russian oil and that question stands even today. India is facing or continues to face punitive tariffs on its exports to the US because of the oil we are importing from Russia. Putting the merit of that aside, one of the things you had pointed out was that there was enough oil around the place that India could import and that seems to be happening.
So given all of that, what's 2026 look like in this region?
In today's, our publication, the Daily Energy Report basically, the main story is about India's imports from Russia and they did decline. And our forecast basically, they can replace about 400 to 600,000 barrels a day. That already happened.
And we were surprised by the speed that it happened. But there are several question marks on this because we believe that there are some parts of the dark fleet ending up in India and not being counted. We've seen certain refiners importing more than their capacity and their inventories did not go up.
So where did that oil go? So, and this is, by the way, this is a natural behaviour. We are seeing this musical chair game being played all over the world, not only in India.
So it's been happening. But the decline, the decline happened. The question is, is this enough to satisfy Trump?
The problem with Trump is if he sees weakness, if you cooperate with him, he wants more. If he smells blood, he will go for the kill. So the problem is I don't see a resolution here.
And you said a few minutes ago, regardless of the merit of it, we all know it is not about imports from Russia. Turkey imports from Russia. He said nothing about Turkey.
Some European countries import from Russia. He said nothing about Turkey. The US still importing uranium from Russia, enriched uranium.
No, he did not say anything. It's not about imports from Russia. He wants to use it as a tool to pressure Prime Minister Moody on something else.
And that's really where the bottom line is. So reducing Russian imports is not going to solve those issues, whatever that dispute is with India.
Right. And you said that India had, you know, speeded up the transition between, you know, to importing from non-Russian sources. And you said that that was, the speed was, I don't know if you use the word unusual, but it was definitely faster than expected.
So how did that happen?
Well, what they did is they just reduced imports from Russia and they switched to other countries. Of course, the price is higher. So the cost for India is going to be higher as a result of that.
But again, the issue here is when those, because Russian oil basically is sold in the spot market. There is no contract, there is nothing. So they can't really stop it.
The issue that we kind of, we should focus on that there are refiners that are complex refiners that can handle a variety of accrues. So they can switch accrues because they are complex, but the ones that are less complex, basically, they cannot do that. So some refiners are more flexible.
Some India refiners are more flexible than others dealing with the Russian crude. So you can see the disparity in the reduction in this case. The other related issue is some of those refiners basically have big businesses in the United States and Europe.
And regardless of governments, they personally fear that their company or their assets, their personal assets could be affected if they don't cooperate. So some of the decline may not be government-induced decline.
Right, okay. Let me come to LNG. That's the other thing that you've also been talking about.
And we are seeing or seem to be seeing a good year for LNG in terms of supplies, lower prices. And that matters for countries like India because the high prices have caused distortions down the line. Plants, power plants, for example, have been shut down in the past and so on.
So what's your outlook like in this case?
We, in the last three weeks, we released three major reports on LNG markets regarding 2025 and the forecast for 2026. And we are, our view is completely different from the market. We are a contrarian here.
The market is expecting a flood of LNG, expecting lower prices. We are not expecting that at all. We believe that many of the projects that people are counting will come online in 2026 will be delayed.
The same thing for 2027 and 2028, while demand is skyrocketing. If you believe that AI is increasing demand for electricity and we have a new entrance to the market, for example, Iraq was never being counted as an importer of LNG. Now it is going to be.
Ukraine was not counted as an importer of LNG. Now it's going to be. The Egypt was an exporter of LNG.
Now it is a major, one of the world's major importers of LNG. So the demand basically is skyrocketing. We will see delays in the new projects.
And as a result, we see more balanced market than what pundits basically are telling us. And even in the long run, or those who are talking about kind of oversupply for many, many years, we don't believe it. If you really look at what's happening around the world, you can see that the demand is booming in a way that exceeds almost all expectations.
Right. And what is it that could change here? I mean, I'm talking still about LNG because I would think that a lot of people are betting on, you know, lower prices of LNG.
And if you're saying that none of these or some of these projects that people are hoping will increase production or start production will not, is there anything else that can change in the energy equation?
Yes. In fact, we've already seen it. Basically one of the surprises we had basically is what China did with the LNG market.
If you look at every single forecast in the market, let's say in 2023 and 2024, they've been counting on this massive increase in Chinese demand for LNG. And now we know it's not the case. In fact, their demand is decreasing.
And there are several reasons for that, that we did not even count. So even our forecast was not correct when it comes to China. And there are some of the decisions were strategic decisions, for example, halting imports completely from the United States that happened in February last year because of strategic reasons, because Trump won the elections and Trump basically changed the whole energy direction.
So China stopped importing LNG and oil from the United States. That was not counted at all in any outlook. At the same time, we've seen because, let me start this story from the beginning because it's important for the audience to understand this.
Israel attacked Iran and that was last June. And that's been protected for 20 years. So finally they did attack.
What was the surprise? The surprise is for the Trump administration to attack. That was a big surprise.
And with the attack, all of a sudden we've seen a wave of articles and news items talking about Iran blocking the Hormuz Strait which is the same old story being repeated. The only thing we noticed this time is these news items about Iran closing the Hormuz Strait were well-coordinated and they have the same talking points. While Iran itself officially never said anything.
And even people who are not in the government making statements, they've been quoted in those reports. So who is behind them? So the message was that understood by China that yes, Iran cannot close the Hormuz Strait.
It is not in Iran's interest to close the Hormuz Strait because all their oil exports basically are from it. They will hurt their friends. They will not hurt Israel.
Israel does not import anything from the Gulf. United States imports very little oil from the Gulf. They are the largest oil producer anyway.
So they cannot hurt the United States. They will hurt their allies. They will hurt themselves.
So they have no interest in this. But China understood one thing. Yes, the Hormuz Strait will be closed one day.
And the one who is going to close it is the United States. Not Iran. Right.
And China- Last question. Sorry. Go ahead, go ahead.
So China understood one thing. That they are going to lose the Qatari LNG. They are going to use the UAE LNG.
So what they did within a week, they signed a contract with Russia for a new pipeline to bring the Russian gas. So these are some of the surprises that were not counted in the LNG market.
Right. Last question, Dr. Al-Aziz. So this is from a India perspective.
India has been investing heavily in deep water wells, particularly the two main oil exploration companies. There's a lot of emphasis, once again, on domestic production. How are you seeing it from your vantage point?
India, of course, for those who don't know imports, are close to 85% of its crude oil requirement. Yes.
The first thing is what India is doing, basically other countries are doing too. It seems there is this conviction around the world that deep water, basically, that's where the oil and gas is. And it has certain, yes, the cost is higher, but it has certain advantages because it's in the open water.
You can take it anywhere. This is an important issue. At the same time, it's not on land where you have all the pollution and all the other issues, et cetera, that affect people.
The area is promising, the areas where India, even the far away areas where they are, these are all of them promising areas. And India need those additions anyway. China has been doing it for the last three years, and they are bringing oil and gas at any cost simply because of the strategic importance of that.
And the same idea for India. It is very strategic for it, basically regardless of the cost, to have a domestic energy source. And with the competition for AI, you cannot have AI without energy.
So if the United States objective is to keep everyone behind on purpose, and they want to be always ahead of everyone in AI, we got to watch how countries are going to react. They want to go for domestic energy regardless of the cost. And this rush for solar and wind, whether in China or India, we got to look at it from strategic perspective, not from an energy market perspective.
Right. Dr. Alhajji, thank you so much for joining me once again. And it was a pleasure speaking with you and hope to connect with you again.
Anytime. Thank you.
Thank you.
