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The world faces a “staggering” oil glut of millions of barrels a day by the end of the decade as oil companies increase output, undermining OPEC+’s ability to control oil prices, the International Energy Agency has warned.
While demand is expected to peak before 2030, continued investment by oil producers led by the US would lead to more than 8 million b/d of spare capacity by then, the IEA wrote in its annual industry report published on Wednesday.
This “massive cushion” of extra oil could “pick up” Opec+ efforts to manage the market and usher in an era of lower prices, the IEA said, adding that the level of spare capacity would be unprecedented outside of the coronavirus pandemic.
“It is not the first time that oil markets have seen an oversupply, but one of the important results would be downward pressure on prices,” said agency director Fatih Birol.
He added that the combination of slowing demand and rising supply “could have substantial implications” for oil companies. “In my opinion, it’s time for many manufacturers to look at their business plans.”
The Paris-based body, which was set up in the wake of Arab oil embargoes in the 1970s to advise on energy security, said last year that the world was at the “beginning of the end” of the fossil fuel era. It said demand for oil, natural gas and coal will begin to decline before the end of the decade amid the mass adoption of renewable energy and electric vehicles.
But his projections have been rejected by the oil industry, particularly in the Middle East and the US, where producers are increasing their investment in pumping more oil.
Global capital spending on oil and fields rose to $538 billion in 2023, the highest level in real terms since 2019. The growth in investment was largely driven by state-owned oil companies in the Middle East, which increased their spending to double the level of 10 flights, and China.
Haitham Al Ghais, OPEC’s secretary-general, described the IEA’s forecasts as “dangerous” and warned of “energy chaos on a potentially unprecedented scale” if producers stop investing in new oil and gas.
In a new report, the IEA questioned whether Opec+ will be able to expand future production as it continues to be pressured by countries outside the alliance, particularly the US.
“This year, [the Opec+] the total oil market share fell to 48.5 percent, the lowest since its inception in 2016, due to a sharp voluntary production cut,” the IEA noted. He added that even if Opec+, the broader group that includes Russia, continued with its deep cuts, “it would exceed demand for its oil to varying degrees from 2025 to 2030.”
Birol outlined three main drivers for oil demand to peak by the end of the decade: a reduction in gasoline consumption as the world moves to electric vehicles, a move by Middle Eastern countries, particularly Saudi Arabia, to switch from oil to renewables for electricity generation . and a lower future growth rate in China.
“Perhaps the most important factor comes from China,” he said. “Over the past 10 years, about 60 percent of global oil demand growth has come from China alone.” The IEA said it expected the 6 percent annual growth that China experienced during that period to fall to around 4 percent annually over the forecast period.
Future growth drivers would include more aviation and a “burgeoning petrochemical sector,” Birol said. The IEA also expects petrol consumption in India to rise as more drivers hit the roads.
Oil demand in OECD countries, which peaked in 2007, meanwhile, would fall to 1991 levels by 2030. The IEA projects 3% annual global economic growth for the rest of the decade.
The IEA warned that its forecast of falling oil demand could be derailed by “relatively small changes” in events. For example, a 0.3% annual increase in global GDP growth, a $5 annual decline in real oil prices, or a 15% slowdown in electric vehicle adoption would be enough to return oil consumption to growth by the end of the year. decade.