A significant build-up in global oil inventories is projected to trigger a substantial drop in crude oil prices over the coming months. This outlook emerges even as Nigeria’s landmark Dangote refinery announces ambitious plans to become the world’s largest processing facility, betting on long-term regional demand.
Dangote’s Refinery Expansion Contrasts with Broader Market Glut
The price of Brent crude spot averaged $68 per barrel in September, holding steady from August levels. However, analysts project this stability will be short-lived. Forecasts indicate that growing global oil supply, combined with a seasonal reduction in demand after the peak summer period, will lead to significant inventory increases. This is expected to force the average price of Brent crude down to $62 per barrel in the fourth quarter of 2025, falling further to an average of $52 in the first half of 2026.
The primary driver of this price drop is a forecasted surge in global oil stockpiles, which are expected to grow by an average of 2.6 million barrels per day in the last quarter of 2025 and remain elevated throughout the following year.
China’s Strategic Stocks and Data Lags Mask True Pressure
The recent price stability has persisted despite an estimated inventory build of 1.9 million barrels per day from May through September. Analysts suggest this resilience may be due to several factors, most notably China’s substantial additions to its strategic petroleum reserves. While China does not publicly report this data, assessments based on trade and refining figures indicate it has been stockpiling oil at a significant rate this year. This strategic purchasing acts as a source of demand, potentially insulating markets from downward pressures more than standard supply-demand models suggest.
Further uncertainty stems from a lag in accurate global demand data, particularly from non-OECD nations. It is possible that actual consumption over the summer was higher than initial estimates, helping to explain the recent price steadiness.
OPEC+ and Non-OPEC Supply Compound Glut
The forecast for mounting inventories factors in continued strong production growth from non-OPEC+ nations, led by the United States, Brazil, Canada, and Guyana. Furthermore, it incorporates planned production increases from the OPEC+ alliance, which began raising output in April 2025.
Despite these increases, the forecast assumes some OPEC+ members will produce below their official targets due to operational constraints. However, the sheer volume of new supply is expected to overwhelm demand growth. Global liquid fuels production is forecast to rise by 2.7 million barrels per day in 2025, while consumption is only expected to grow by 1.1 million.
The inventory build is projected to peak in the first quarter of 2026, averaging over 2.7 million barrels per day. Such a surge could fill available onshore commercial storage, forcing market participants to resort to more expensive floating storage. This higher marginal cost of storage would, in turn, be reflected in lower crude prices.
Dangote’s Bold Expansion Amidst Market Uncertainty
In a bold counterpoint to the bearish price forecast, Nigeria’s 650,000 barrel-per-day Dangote refinery has confirmed plans to expand its capacity to 1.4 million barrels per day by 2028. Chairman Aliko Dangote stated that a second, 750,000 barrel-per-day processing line will be constructed at the Lagos site, a move that would make it the largest refinery in the world upon completion.
This ambitious expansion is squarely aimed at meeting rising fuel demand within Africa. "There is quite a lot of demand, really, within the African region," Dangote noted, citing interest from Ghana and Angola and stating that the refinery’s current capacity is insufficient.
The project, however, faces a critical challenge that highlights a key tension in the global market: securing sufficient supplies of Nigerian crude. The company has repeatedly stated it cannot get enough domestic oil for its existing operations, despite a presidential directive facilitating sales from the state-owned NNPC.
Dangote has accused international oil companies and regulators of exploiting loopholes in Nigeria’s 2021 petroleum law, which is based on a "willing seller, willing buyer" principle, to export crude rather than supply domestic refineries. He has expressed support for a new bill aiming to amend this act and ensure more crude is processed locally.
Significant Uncertainties Remain
The price forecast is subject to significant uncertainties. The pace of China’s strategic stockpiling is a major unknown; a slowdown in its purchases would add further downward pressure on prices. Geopolitical risks, including the ongoing Russia-Ukraine conflict and associated sanctions, could disrupt supply. Furthermore, faced with a looming oversupply, the OPEC+ alliance could potentially reverse its plans to increase production, which would help to stabilise prices.
For now, the market signals point towards a period of growing plenty, setting the stage for a notable correction in oil prices as soon as the final quarter of this year.
Written By:
*Cole Jackson
Lead Associate at BRICS+ Consulting Group
Chinese & South American Specialist
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