OPEC Expects Tighter Oil Market in 2026 Amid Increased Economic Momentum

The Organization of the Petroleum Exporting Countries (OPEC) has slightly increased its global oil demand forecast for 2026, expecting a tighter market amid economic momentum that is projected to continue next year.

Demand for crude is now expected to grow by 1.4 million barrels per day (bpd), a slight upward revision from its previous forecast. This revised forecast is paired with a projection for a slower expansion in supplies from OPEC’s rivals, as stated by the Vienna-based alliance of oil-producing nations in its monthly market report for August.

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According to the report, crude demand in the Organisation for Economic Co-operation and Development (OECD) countries is projected to grow by 200,000 bpd, while non-OECD nations are expected to register a more substantial 1.2 million bpd rise. This highlights a persistent and fundamental shift in the primary drivers of global oil consumption.

OPEC, however, kept its 2025 demand growth view unchanged at 1.3 million bpd. The group also revised its 2025 economic growth forecast higher to 3 per cent, expecting the “strong momentum” in the first half of 2026 to continue into the latter part of the year. Growth estimates for this year, however, remained unchanged at 3.1 per cent.

Growth in the United States, the world’s largest economy, was slightly revised upwards to 1.8 per cent for this year and remained at 2.1 per cent for the next.

“The global economy continues to follow a stable growth trajectory… economic data at the start of the second half of 2025 further confirms the resilience of global growth, despite persistent uncertainties related to US-centred trade tensions and broader geopolitical risks,” the report said. It did, however, warn that relations between the US and its partners, strained to various degrees by President Donald Trump’s sweeping tariffs, may be a root of trade-related uncertainties that could cause disruption in activity and some inflationary effects. The ongoing trade tensions between the US and China have been a particular source of concern for the global market.

“Nonetheless, a range of fiscal and monetary policy measures is expected to help offset these effects… the forecast assumes that reasonable trade agreements will be maintained with most key US trading partners, allowing global economic uncertainty to ease further in the coming months,” Opec said.

Oil markets have remained volatile in a year featuring Mr Trump’s tariff plans and the Iran-Israel conflict. Prices started the year strongly, with Brent, the benchmark for two thirds of the world’s oil, peaking at more than $82 a barrel on January 15. West Texas Intermediate (WTI), the gauge that tracks US crude, hit almost $79 per barrel on the same day. However, demand concerns, a slowing global economy, and less-than-stellar growth in China, the world’s largest crude importer, have dampened prices this year.

Oil is also under pressure as members of the OPEC+ alliance of crude producers, led by Saudi Arabia and Russia, continue to boost supply. This month, the group agreed to increase oil production by 547,000 bpd for September as members unwind voluntary cuts introduced during the Covid-19 pandemic. That followed a 548,000 bpd rise in August and 411,000 bpd from May, June, and July. Opec’s report on Tuesday showed the group raised production by 335,000 bpd in July.

Oil prices were down on Tuesday at 5.41pm UAE time, with Brent retreating 0.47 per cent to $66.32 a barrel. West Texas Intermediate shed 0.72 per cent to $63.50. Both benchmarks are down more than 11 per cent so far in 2025 against a backdrop of volatile trading.

The Forces at Play: A Deep Dive into OPEC’s 2026 Outlook

OPEC’s latest report is more than just a set of numbers; it’s a window into the complex web of factors that dictate the global oil market. The forecast for a “tighter” market in 2026, driven by rising demand and slowing non-OPEC supply, is a nuanced prediction that hinges on economic health, geopolitical stability, and the strategies of major oil-producing nations. To truly understand this outlook, we need to break down the key drivers on both the supply and demand sides of the equation, and also consider the broader macroeconomic context.

Decoding Global Oil Demand

The most significant takeaway from the report is the projected demand growth, particularly the stark difference between OECD and non-OECD nations. While OECD countries are only expected to see a marginal 200,000 bpd increase, the non-OECD bloc is forecasted to drive 1.2 million bpd of new demand. This isn’t a new trend, but it is one that is accelerating.

The Engine of Growth: Non-OECD Nations

The primary drivers of this demand surge in non-OECD countries are rooted in rapid economic development and population growth. As economies in places like Asia, Africa, and Latin America expand, so does the need for energy to power everything from manufacturing and agriculture to a growing middle class with a greater appetite for personal transportation and consumer goods.

• China and India: These two economic giants are consistently at the forefront of demand growth. As China’s economy continues to evolve and India’s rapid urbanization and industrialization continue, their combined demand for crude is a powerful force. While China’s demand growth has shown signs of slowing in recent years, the sheer size of its economy means even modest growth rates translate into huge volumes of oil consumption. India, with its massive and youthful population, is seen as a key long-term growth driver for the global oil market.
• Aviation and Transportation: A significant portion of this new demand is expected to come from transportation fuels like gasoline and jet fuel. As incomes rise, more people can afford to travel, both domestically and internationally. This directly translates to higher consumption, particularly in the aviation sector, which is still heavily reliant on traditional fuels.
• Petrochemicals: Oil is not just for fuel. It is a critical feedstock for the petrochemical industry, which produces plastics, fertilizers, and countless other products essential for modern life. As industrialization takes hold in developing nations, the demand for these products soars, creating a steady and growing need for crude oil.

Maturity and Efficiency: The OECD Picture

In contrast, the more developed OECD economies are seeing much slower oil demand growth. This is due to a combination of factors, including energy efficiency improvements, the widespread adoption of electric vehicles (EVs), and a shift towards renewable energy sources. While oil consumption for things like air travel remains strong, the overall trajectory is one of maturity rather than rapid expansion. The slight increase projected by OPEC for 2026 likely reflects a robust economic rebound post-pandemic, but it’s not expected to be a long-term trend.

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The Supply Side: The Rise and Fall of Non-OPEC Production

OPEC’s forecast for a “tighter market” is just as dependent on the supply side as it is on demand. The report specifically mentions a “slower expansion in supplies from Opec’s rivals.” Who are these rivals, and why is their output expected to moderate?

The Giants Outside the Alliance

The term “OPEC’s rivals” is primarily a reference to major non-OPEC oil producers. The most significant of these is the United States, whose shale oil revolution over the last decade dramatically changed the global energy landscape. Other key players include Brazil, Canada, and Guyana, all of whom have been ramping up production in recent years.

• The US Shale Slowdown: The US Energy Information Administration’s (EIA) Short-Term Energy Outlook indicates a potential slowdown, and even a decline, in US oil output for 2026. This is a significant reversal from the boom years and is attributed to several factors. Lower oil prices and a cautious approach by companies, often prioritizing returns to investors over aggressive production growth, have led to a decrease in drilling activity. The number of active drilling rigs in the US is reportedly at a four-year low, and while well efficiency is still improving, the overall trend points to a moderation of the shale boom’s pace.
• The Role of Other Non-OPEC Producers: While the US is a major factor, the production profiles of other countries also play a role. Brazil has been a consistent source of new offshore oil, and Guyana’s recent discoveries have made it a rising star. However, the timelines for developing these projects are long, and they can’t always offset a broader slowdown in a coordinated manner.

OPEC+’s Strategy and Market Management

The article mentions that the OPEC+ alliance is unwinding some of its voluntary production cuts. This alliance, which was formed in 2016 in response to the initial surge of US shale production, includes the 13 OPEC members and 10 other major oil-producing nations, most notably Russia. Its primary objective is to manage the global oil supply to ensure price stability.

Over the past few years, the group has implemented a series of deep production cuts to support prices, especially during the downturns caused by the pandemic and other global events. The recent increases in supply—the 547,000 bpd for September, following similar increases in the preceding months—are part of a planned unwinding of those cuts. The timing and scale of these increases are carefully calibrated to prevent a sudden oversupply that could crash prices, all while trying to meet growing global demand. This balancing act is what makes OPEC+ a critical player in the market.

The Broader Picture: Geopolitical and Economic Uncertainties

Beyond the fundamentals of supply and demand, OPEC’s forecast acknowledges a number of significant external risks. These factors, which are often unpredictable, have the potential to completely disrupt market dynamics and invalidate even the most careful projections.

Trade Tensions and Tariffs

The report explicitly mentions “US-centred trade tensions” as a source of uncertainty. President Trump’s use of tariffs as a foreign policy tool has created friction with major trading partners and injected a new layer of risk into the global economy. These tariffs can disrupt supply chains, slow down economic activity, and, by extension, reduce the demand for oil. The fear is that a full-blown trade war could derail the “stable growth trajectory” that OPEC is counting on, leading to a much weaker market than currently forecast.

Geopolitical Conflicts

The year 2025 has been marked by significant geopolitical instability, and the article specifically names the Iran-Israel conflict. This and other regional tensions, such as the ongoing Russia-Ukraine war, are critical for oil markets because they can directly impact production and shipping routes.

• Middle East Instability: The Middle East is the heart of global oil production, and any conflict there has the potential to disrupt a massive portion of the world’s supply. A widening conflict could lead to a sudden and dramatic drop in oil exports from key producers, which would almost certainly cause a sharp spike in prices.
• Russia’s Role: As a key member of OPEC+, Russia’s production and export policies are hugely influential. The ongoing conflict and related sanctions have already reshaped global energy flows and continue to be a major source of market uncertainty.

The Volatility of Prices: Brent vs. WTI

The news report highlights the volatility of both Brent and West Texas Intermediate (WTI) crude benchmarks. To understand this, it’s important to know what they represent.

• Brent Crude: This is a blend of crude oils from oil fields in the North Sea. It serves as the primary international pricing benchmark for crude oil, especially for oil produced in Europe, Africa, and the Middle East. Its price is often seen as a reflection of global economic health and political stability.
• West Texas Intermediate (WTI): This is a high-quality, light, sweet crude oil produced in the US and primarily used as a benchmark for oil produced in North America. Its price is influenced more by US-specific factors like domestic production levels and inventory reports.

Both benchmarks are interconnected but can diverge based on regional supply and demand factors. The more than 11 per cent drop in their values so far in 2025, as mentioned in the article, reflects the powerful combination of a slowing global economy, demand concerns from China, and the strategic production increases from the OPEC+ alliance, which has led to a perceived surplus in the market, particularly from the perspective of the US Energy Information Administration.

The Long View: What to Expect from the Tighter Market

OPEC’s revised forecast for 2026 paints a picture of cautious optimism. It suggests that while this year’s market has been challenging due to a confluence of economic and geopolitical headwinds, the coming year may see a return to stronger fundamentals. The “tighter market” prediction is not necessarily about a shortage, but rather a more balanced market where demand growth, particularly from the developing world, finally starts to outpace the supply additions from non-OPEC producers. This could lead to a more stable, and potentially higher, price environment than what has been seen for much of 2025.

However, the forecast is not without its risks. The success of this outlook depends heavily on two things: a sustained and robust global economic recovery, and a de-escalation of the geopolitical and trade tensions that have been plaguing the market. If either of these falters, OPEC’s optimistic outlook could quickly change. For now, the group is betting on a resilient global economy and a steady hand in managing supply, hoping to guide the market toward a period of greater stability and higher prices for its members.

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By: Montel Kamau

Serrari Financial Analyst

13th August, 2025