The International Energy Agency (IEA) stated on Wednesday that a U.S.-led surge in global oil production is expected to exceed demand growth from now until the end of the decade.
This development could push spare capacity to unprecedented levels and potentially disrupt OPEC+ market management.
The IEA’s latest medium-term market report, titled “Oil 2024,” indicates that oil demand growth is on track to slow down before ultimately peaking near 106 million barrels per day by 2030, up from just over 102 million barrels per day in 2023.
In contrast, total oil production capacity is projected to surge to nearly 114 million barrels per day by 2030, which is 8 million barrels per day above the anticipated global demand.
Implications for oil markets and industry
The report highlights that this surplus in production capacity will result in levels of spare capacity not seen since the height of the COVID-19 lockdowns in 2020.
The IEA warns that these dynamics could have significant consequences for oil markets, including impacts on the U.S. shale industry and producer economies within OPEC and beyond.
IEA Executive Director Fatih Birol issued a cautionary statement for major oil companies, suggesting they may need to align their business strategies with the changes occurring in the energy sector.
As the pandemic rebound loses steam, clean energy transitions advance, and the structure of China’s economy shifts, growth in global oil demand is slowing down and set to reach its peak by 2030.
Shift towards clean energy
The IEA’s report arrives as countries worldwide seek to transition away from fossil fuels, with increasing momentum behind clean and energy-saving technologies.
The agency noted that the share of fossil fuels in the global energy supply has remained around 80% for decades but expects this to decline to approximately 73% by 2030.
Despite the projected slowdown in oil demand growth, the IEA emphasized that without stronger policy measures or behavioral changes, crude demand is still expected to be around 3.2 million barrels per day higher by 2030 than in 2023.
This growth is primarily driven by robust demand from fast-growing economies in Asia and sectors such as aviation and petrochemicals.
Decline in advanced economies’ oil demand
In advanced economies, however, the IEA forecasts a decrease in oil demand, projecting it to fall below 43 million barrels per day by 2030, down from nearly 46 million barrels per day in 2022.
Aside from the coronavirus pandemic, the last time oil demand from advanced economies was this low was in 1991.
The findings of this report build on a landmark 2021 IEA report that urged against new oil, gas, or coal developments if the world aims to achieve net zero emissions by 2050.
That report faced criticism from several OPEC+ producers who advocate for dual investment in hydrocarbons and renewables until green energy can fully meet global consumption needs.
OPEC+ and market management
Led by Saudi Arabia, OPEC+ is an influential energy alliance composed of OPEC and non-OPEC partners. The potential supply surplus forecasted by the IEA poses challenges for OPEC+ in managing market stability and pricing.
The June report also revised short-term global oil consumption downward by 100,000 barrels per day in 2024, bringing the expected demand to 960,000 barrels per day for the year.
“The latest bout of demand weakness shows up in refining margins in Asia and the United States, which retreated to three-year lows in May,” the report noted.
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