For all those looking to invest in oil, prognosis positive. Consensus says we have more than enough oil, so you know what that means…go to the other side of the boat.
Outlook
Taken together, the two IEA reports—along with the clear rollover in the Permian—reinforce our conviction that we are on the right path. More intriguingly, they may hint at a broader shift in the IEA’s long-term perspective. For the better part of twenty-five years, the agency has maintained a consistently bearish view of oil. Any softening of that stance would come as a surprise to a market that has grown accustomed to hearing the same refrain.
If the long-term picture now looks so constructive, why do investors remain so pessimistic? The answer lies in the IEA’s short-term Oil Market Report, which models balances through 2026. In its latest edition, the agency argues that today’s market is in a deep surplus—one that will supposedly worsen next year. According to the report, the current glut rivals the excess seen during COVID, and the coming year’s surplus may be even larger.
We see it differently. The issue comes down to the so-called “missing barrels.” As we’ve noted before, every barrel of oil produced must either be consumed or placed into storage. Yet in the first three quarters of the year, the IEA estimates that global production exceeded consumption by 2 mm b/d—while inventories rose by only about 400,000 b/d. The remaining 1.6 mm b/d simply disappear in their accounting. We refer to these, only half in jest, as the “missing barrels”—oil that was produced, but neither consumed nor stored according to the data.
There are only three possibilities: inventories are being measured incorrectly, supply is overstated, or demand is understated. Historically, it has almost always been the third. Inventory levels are directly observable, and supply numbers are tied to tax and royalty reporting, leaving demand as the usual culprit. We believe that is the case again—global demand is being significantly undercounted.
To be fair, this year’s data is somewhat skewed by an increase in oil aboard tankers. Some analysts have suggested that even more crude is “on the water” than reported, implying a quiet return of floating storage. We think the explanation is far simpler. As OPEC+ raised production, the volume of oil in transit naturally rose as well—much like the oil required to fill a new pipeline when it first comes online. We track every tanker loading and discharge globally and see no evidence that vessels are being used as floating storage. The market has been in mild backwardation besides, eliminating any economic incentive for traders to store oil at sea.
Even after adjusting for the additional oil in transit, the “missing barrel” discrepancy still exceeds 1 mm b/d so far in 2026. And there is no sign the gap is closing. The IEA maintains that the surplus will widen further in the fourth quarter. Yet real-time data tells a different story. U.S. inventories—which represent nearly half of all global commercial storage—have risen by only about 200,000 b/d above seasonal norms over the past two months, down sharply from the roughly 800,000 b/d of excess builds seen earlier in the year. The supposed glut is shrinking, not expanding.
According to the IEA’s headline numbers, global demand rose by 800,000 b/d year-on-year in the third quarter to reach 105 mm b/d. But if the “missing barrels” are, as history suggests, really uncounted consumption, then adjusted demand did not rise by 800,000 b/d—it rose by roughly 2.2 mm b/d to reach 106.4 m. b/d. The gap between the reported figure and the implied one is striking.
This has major implications for 2026. Based on the IEA’s headline figures, demand is expected to grow another 800,000 b/d between the third quarter of 2025 and the third quarter of 2026, reaching 105.7 mm b/d. However, if you believe that demand is actually currently 106.4 mm b/d (as we do), and that it continues to grow by its present 2 mm b/d year-on-year, then it could actually reach 108.4 m b/d by the third quarter of next year – some 2.7 mm b/d higher than the IEA’s expectations. Even with these adjustments, the market may still show a surplus next year—but a far smaller one than the IEA portrays.
There are also meaningful risks on the supply side, particularly in the U.S., Russia, and Saudi Arabia. The IEA assumes U.S. production will hold flat through the third quarter of 2026; we think it could just as easily decline by 200,000 b/d. Russia is similarly projected to remain steady at 9.3 mm b/d, though ongoing depletion issues and restricted oil-service support make that number far from assured.
Saudi Arabia remains the real wildcard. The IEA expects the Kingdom to average 10.1 mm b/d next year, a figure we consider optimistic. We have written extensively about the growing strain on Saudi Arabia’s supergiant fields, and our analysis suggests the Kingdom struggles to sustain 10 mm b/d without risking long-term reservoir damage. Historically, whenever production has pushed above that level, it has been accompanied by draws on inventories and then followed by pronounced cutbacks to rest the fields. It is too early to make firm predictions, but we would not be surprised if Saudi Arabia announces an unanticipated reduction in output sometime within the next twelve months.
Thus, while the prevailing view—shaped largely by the IEA and echoed by Doomberg— insists that oil markets are drowning in the worst surplus in history, soon to worsen and then slide into terminal decline, our reading of the data points in a very different direction. We see a market that has weathered an unexpected 2-million-barrel-per-day surge from OPEC+ remarkably well, that sits in only a slight surplus today, and that could tip back into a modest deficit by this time next year. Furthermore, the past two years have seen the majority of easily mobilized production vanish – first it was the drilled-but-uncompleted wells in the shales and now it is OPEC+ spare capacity. This leaves very little buffer in near-term oil production.
Beyond that, the fundamentals become even more compelling, driven by rising base-decline rates and steady demand growth—precisely as the only major source of non-OPEC+ supply this decade rolls over.
The great irony of markets is that turning points always look least convincing just before they happen. The data are debated, the narratives feel entrenched, and the consensus leans all to one side—until the floor shifts beneath it. Every great oil cycle ends the same way: with certainty giving way to surprise. The last time investors were this confident in a glut, the market doubled before they understood what had happened. Today’s setup is even tighter. We have acted on that reality. Others will move later—when the price has already rewritten the narrative.
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