Unlock the Editor’s Digest for free
Roula Khalaf, editor of the FT, selects her favorite stories in this weekly newsletter.
The world faces a “staggering” oil glut reaching millions of barrels a day by the end of this decade as oil companies increase production, undermining Opec+’s ability to control crude prices, the International Energy Agency has warned.
While demand is expected to peak before 2030, continued investment by US-led oil producers would result in more than 8 million barrels per day of spare capacity by then, the IEA wrote in its annual report on the sector on Wednesday was released.
This “huge cushion” of additional oil could “boost” Opec+’s 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 the pandemic of the coronavirus.
“It is not the first time that oil markets have faced oversupply, but a key outcome would be downward pressure on prices,” said Fatih Birol, director of the agency.
He added that the combination of declining demand and rising supply could have “substantial consequences” for oil companies. “In my opinion, it is time for many producers to look at their business plans.”
The Paris-based body, set up in the wake of the Arab oil embargoes of 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 is said that demand for oil, natural gas and coal will all start to decline before the end of this decade due to the massive rollout of renewable energy and electric vehicles.
But its forecasts have been rejected by the oil industry, especially in the Middle East and the US, where producers are stepping up investments in pumping more crude.
Global capital expenditure on oil and fields rose to $538 billion in 2023, the highest level since 2019 in real terms. The increase in investment was driven largely by state oil companies in the Middle East, which increased spending to twice the level of a decade ago, and by China.
Haitham Al Ghais, general secretary of Opec, has described the IEA forecasts as “dangerous” and warned of “energy chaos on a potentially unprecedented scale” if producers were to stop investing in new oil and gas.
In its new report, the IEA questioned Opec+’s ability to expand future production as it remains under pressure from countries outside the alliance, especially the US.
“This year, [the Opec+] the overall oil market share fell to 48.5 percent, the lowest since its inception in 2016, due to sharp voluntary production cuts,” the IEA said. It added that even if OPEC+, a broader group that includes Russia, were to continue its deep cuts, it would “exceed crude oil demand to varying degrees from 2025 to 2030.”
Birol outlined three key factors that will see oil demand peak by the end of this decade: lower gasoline consumption as the world shifts to electric vehicles, a move by Middle Eastern countries, especially Saudi Arabia, to switch from oil to renewable energy sources to generate electricity. and a lower future growth rate in China.
“Maybe the most important factor comes from China,” he said. “Over the past decade, about 60 percent of global oil demand growth came from China alone.” The IEA said it expected the 6 percent annual growth recorded by China in that period to fall to around 4 percent per year over the forecast period.
Future growth drivers include more aviation and the “booming petrochemical sector,” Birol said. The IEA also expects petrol consumption in India to increase as more motorists take to the road.
Meanwhile, oil demand in OECD countries, which peaked in 2007, is expected to fall to 1991 levels by 2030. The IEA projects annual global economic growth of 3 percent for the rest of the decade.
The IEA warned that its forecast for shrinking oil demand could be derailed by “relatively small changes” in events. A 0.3 percent annual increase in global GDP growth, a $5 per year decline in real oil prices, or a 15 percent slowdown in electric car rollout would each be enough to boost oil consumption by the end of the twentieth century to grow again. the century.