Will the world produce more oil than it needs? The International Energy Agency (IEA) anticipates a “major surplus” in oil markets by 2030. This is due to a combination of increased production and the shift towards clean energy, which is moderating demand.
Global demand aims to stabilize at 106 million barrels per day by the end of the decade, while overall supply capacity could reach 114 million barrels, the IEA noted in its annual oil report on Wednesday. This would result in a “staggering” surplus of 8 million barrels per day, for which markets must prepare, according to the IEA.
Transition to Clean Energy
Fatih Birol, IEA’s executive director, highlighted that the post-pandemic rebound is waning, the transition to clean energy is advancing, and China’s economic structure is evolving. These factors are slowing global oil demand growth, which Birol expects to peak by 2030. In this “major supply surplus” environment, oil companies may need to ensure their strategies and business plans are prepared for ongoing changes.
Impact on Oil Companies and Markets
The IEA’s annual oil market report comes shortly after the decision by the cartel of oil-exporting countries and its allies in OPEC+ to gradually lift their production cuts, easing the supply reduction policy initiated at the end of 2022 to support prices.
The IEA, in its report, notes that “the strong demand from rapidly growing Asian economies” like India and China, as well as from the aviation and petrochemical sectors, will continue to drive oil consumption “in the coming years”. However, these gains will increasingly be offset by factors such as the rise in electric vehicle sales, improved efficiency of conventional (combustion) vehicles, and reduced oil use for electricity generation in the Middle East. These factors should limit demand growth to 4% by 2030, reaching 106 million barrels per day, up from 102 million in 2023.
Decline in Advanced Economies
The IEA particularly notes that the decades-long decline in oil demand in advanced economies will continue, dropping from nearly 46 million barrels per day in 2023 to less than 43 million barrels per day by 2030, the lowest level since 1991, excluding the COVID-19 pandemic period.
Investment in Clean Energy
Globally, states and companies are accelerating investments in clean energy to reduce greenhouse gas emissions from fossil fuels that warm the planet. Simultaneously, the IEA expects global oil production to increase, driven by non-OPEC+ producers, particularly the United States. Thus, global supply would exceed projected demand as early as 2025, resulting in a surplus of 8 million barrels by the end of the decade, “levels not seen outside the COVID crisis”.
Potential for Lower Oil Prices
Such a production surplus could lead to a lower oil price environment, posing significant challenges for the U.S. shale industry and the OPEC+ bloc led by Saudi Arabia and Russia, according to the report. In its monthly oil report, which explores short-term trends, the IEA slightly lowered its global oil demand growth forecast for 2024, now estimating it at 960,000 barrels per day, after having already reduced its forecast last month to 1.1 million barrels. For 2025, the IEA expects “gloomy oil prospects” to continue, with a “modest increase of 1 million barrels per day”, below its previous estimate of a 1.2 million increase.