Oil Glut Fears Built On Bad Math, Warns Energy Analyst Anas Alhaji
Alhaji notes that institutional forecasts have a long history of inaccuracy regarding consumption trends.
The Gist
- The IEA and financial institutions warn of a significant market surplus, yet current data indicates stability in oil prices.
- Alhaji criticizes the IEA for consistently underestimating oil demand and misinterpreting shipping data.
- Shifts in export routes and strategic reserves contribute to a flawed surplus narrative, with geopolitical factors further complicating the outlook.
Global oil market projections of a massive surplus in 2026. But this may be based on fundamental accounting errors and a misunderstanding of geopolitical trade shifts, energy expert Dr Anas Alhaji told The Core in the run-up to Indian Energy Week.
While the International Energy Agency (IEA) and major financial institutions warn of a deep market surplus by the first quarter of 2026, current market data suggests a far more balanced reality.
Failed Predictions
Forecasts suggesting oil prices would collapse into the $40 range have repeatedly failed to materialise. Despite persistent warnings of a glut since early 2025, Brent crude has remained steady in the $60 to $65 range. Alhaji notes that institutional forecasts have a long history of inaccuracy regarding consumption trends.
"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," Alhaji stated. He argued that these agencies consistently underestimate demand while exaggerating the impact of "oil on water" — crude currently in transit.
Distorted Data, Shifting Routes
The narrative of an oversupplied market is often skewed by a failure to account for longer shipping distances. For example, Brazil has shifted its exports from the US and Europe to China. Because the distance to China is triple that of previous routes, more oil remains on water for longer periods, appearing as an increase in inventory even though the actual supply has decreased.
Similar distortions appear in North America. Canadian oil previously moved through U.S. pipelines and was not counted as "oil on water." With new pipelines to the West Coast now sending 400,000 barrels a day to China, analysts are counting this as "extra" supply rather than a simple shift in transportation mode.
The Inventory Accounting Flaw
A critical error in surplus projections involves how strategic reserves are categorised. In the United States, production increases have been offset by the government locking oil away in the Strategic Petroleum Reserve (SPR).
"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," Alhaji explained. Because this oil is locked up and unavailable to the market, it does not contribute to a bearish surplus. China is following a similar strategic path, building massive inventories that are strategic rather than market-based, yet these are still being labelled as excess supply by major banks.
Geopolitical Realities
Supply-side shocks further undermine the glut narrative. In Kazakhstan, exports recently "dropped like a rock" following drone attacks on Russian terminals and tankers used for Kazakh crude.
Furthermore, the prospect of Venezuela flooding the market is a long-term endeavour rather than an immediate threat. Alhaji noted, "To increase production by 1 million barrels a day, assuming all the stars are aligned and everything is good, it will take three years." By the time such production comes online, global demand growth and natural field depletion rates — estimated at 10 to 12 million barrels a day — will likely have absorbed the additional volume.
Ultimately, the market remains range-bound. While seasonal builds may occur, the "historic surplus" many fear appears to be a miscalculation of global trade dynamics.
