The World Has Too Much Oil and That Changes Everything at the Bowser

The World Has Too Much Oil and That Changes Everything at the Bowser

Something big is happening in global oil markets right now, and most Australians haven't heard a word about it. The International Energy Agency, the closest thing the world has to an oil referee, recently dropped a bombshell: the planet is on track for a surplus of nearly 4 million barrels of oil per day in 2026. That's the largest annual oversupply ever recorded.

To put that number in perspective, Australia's entire daily oil consumption sits at around 1 million barrels. So the world's surplus alone could fuel this country four times over. Every single day.

Where All This Extra Oil Is Coming From

Three forces are converging in a way the oil industry hasn't seen before.

First, the Americans can't stop drilling. US crude oil production smashed through 13.6 million barrels per day last year, a record, and output is expected to keep climbing through 2026. Improved shale efficiency and better drilling technology mean American producers can now extract profitably at prices that would have bankrupted them a decade ago.

Second, OPEC+ is opening the taps. After five years of holding back production to prop up prices, the cartel's eight key members, including Saudi Arabia, Russia, Iraq and the UAE, are now unwinding those voluntary cuts. The IEA forecasts OPEC+ will boost output by an average of 1.4 million barrels per day this year and another 1.2 million in 2026.

And third, new producers keep emerging. Brazil, Guyana, Canada and Argentina are all ramping up, collectively adding over a million barrels per day of new supply outside the OPEC+ bloc.

The result? Brent crude, the benchmark that determines what Australians pay at the servo, has been hovering around $71 per barrel through February. Analysts at Rabobank reckon it'll average around US$62.50 for the rest of 2026. That's well below the $80+ levels we saw through much of 2024.

The Demand Side Is Even More Interesting

Here's where the story gets fascinating. While supply is surging, demand growth is sputtering.

Global oil demand is still rising, but only barely. The IEA puts growth at roughly 700,000 barrels per day in both 2025 and 2026, a fraction of what it was before the pandemic. And the reason goes beyond economics.

Electric vehicles sold 17 million units globally in 2024 and are on track to break 20 million this year. The IEA estimates EVs will displace 5.4 million barrels of oil demand per day by 2030. That's not a projection from some activist group. That's the world's energy watchdog putting hard numbers on it.

China, the country that single handedly drove global oil demand growth for two decades, is now the world's largest EV market. Its petrol consumption is actively declining.

And Australia? We're following the same path, just a few years behind. In January 2026, 16 per cent of all new cars sold were electric or plug in hybrid, according to VFACTS data. That's up from 9.5 per cent just two years ago. Meanwhile, petrol vehicle sales dropped 14.7 per cent compared to January last year.

The numbers tell a clear story. Australians are buying fewer petrol cars and more electric ones. CommBank analysis suggests petrol cars could represent less than half of new sales by the end of 2027.

So Why Isn't Petrol at $1.20?

Fair question. If the world has too much oil and demand is softening, shouldn't prices be falling off a cliff?

The national average for unleaded sat at around 170.7 cents per litre through February, down from 176.5 cents in January. Prices have eased, but they're hardly rock bottom.

Several factors explain why Australian motorists don't get the full benefit of cheaper crude.

The Australian dollar matters enormously. Oil is priced in US dollars, so even when Brent drops, if the Aussie dollar weakens against the greenback, the savings get eaten up in the currency conversion. The dollar has climbed from about US63 cents a year ago to around US70 cents now, which has helped. But it's still a long way from the parity days of 2011 when a strong dollar meant genuinely cheap petrol.

Then there's fuel excise, which ticked up again on February 2. CPI indexation bumped it from 48.8 cents to 49.6 cents per litre. That's an automatic increase that happens twice a year regardless of what oil prices do. Unlike the brief excise cut during the 2022 election, nobody's talking about rolling it back.

Refining margins add another layer. Australia only has two operating refineries, one in Geelong and one in Brisbane, which means we import roughly 90 per cent of our refined fuel. We're price takers in the Asian refining market, where margins fluctuate based on regional demand from India, China and Southeast Asia.

And competition varies wildly by location. Motorists in Perth might see prices 15 cents cheaper than those in Sydney, not because crude oil costs different amounts, but because local competition, transport costs and cycle timing create a patchwork of pricing across the country.

What This Actually Means for Your Wallet

The practical upshot is cautiously good news.

If Rabobank's forecast of US$62.50 Brent holds for the back half of 2026, and the Australian dollar stays around current levels, we should see national average prices drift toward the 160 cent range for unleaded. For a 50 litre tank, that's a saving of roughly $5 compared to January's levels. Not transformative, but enough you'd notice over a year.

Regional drivers might see bigger benefits. Western Australia already tends to have lower prices thanks to the transparency of FuelWatch, and Adelaide and Melbourne frequently dip during the low points of their price cycles. Motorists in Brisbane and Sydney, where cycles stretch out beyond 30 days, need to time their fill ups carefully to catch the troughs.

Diesel has its own dynamics worth watching. Industrial and agricultural demand continues growing at about 4 per cent annually, so don't expect diesel to fall as sharply as petrol. But with crude heading lower, even diesel should soften over coming months.

The Bigger Picture

What's really happening here is structural, not cyclical. The oil industry is facing a future where demand growth has essentially stalled in developed countries and will eventually plateau globally. The IEA sees world oil demand reaching about 105.5 million barrels per day by the end of the decade before flattening out.

For Australia, an island nation importing nearly all its refined fuel through just two remaining refineries, this creates an interesting tension. Cheaper crude is good for motorists' wallets in the short term. But the global shift away from oil raises longer term questions about fuel supply security, refinery viability, and how quickly we need to build out EV charging infrastructure, particularly in regional areas like Ballarat, Bendigo and Toowoomba where range anxiety still puts people off going electric.

One in six new cars sold here is now electric. That proportion will only grow. The government's New Vehicle Efficiency Standard is pushing manufacturers toward cleaner models, and the economics of EVs improve with every new model from BYD, Tesla and the traditional manufacturers scrambling to keep up.

What to Watch

A few things worth keeping an eye on. OPEC+ meets regularly and could reverse course on production increases if prices fall too far, putting a floor under crude. The Australian dollar's trajectory will matter just as much as oil prices themselves. And watch for the ACCC's next quarterly petrol monitoring report, due around April, which will show whether retailers are passing on cheaper wholesale costs or quietly pocketing the difference.

The oil industry rarely looks this oversupplied. Whether that translates into meaningful relief at the bowser depends on forces well beyond the crude price. But for the first time in years, the fundamentals are pointed in motorists' favour. Keep an eye on this space.