Source-World-Bank-Blogs
The International Energy Agency (IEA) has issued a stark warning about the global oil industry, predicting a significant surplus of oil production by the end of the decade. According to the IEA’s annual report released on Wednesday, oil companies are ramping up production, resulting in a “staggering” surplus of millions of barrels per day.
By the year 2030, the IEA forecasts that demand for oil will peak, but ongoing investment in production, particularly led by the United States, will lead to an unprecedented surplus of over 8 million barrels per day. This surplus, described by the IEA as a “massive cushion” of extra oil, poses a challenge to the efforts of OPEC+ to manage crude prices.
The surplus could potentially disrupt the market dynamics established by OPEC+ and could usher in a period of lower oil prices, the IEA cautioned. This surplus capacity is particularly notable as it would be unprecedented outside of the disruptions caused by the coronavirus pandemic.
Oil industry requires careful consideration and planning
Fatih Birol, the director of the IEA, emphasized the importance of oil companies adapting their business strategies to account for these impending changes. He noted that the evolving landscape of the oil market requires careful consideration and planning by industry stakeholders.
The IEA, headquartered in Paris, was established in response to the 1970s Arab oil embargoes with the mandate to advise on energy security. Last year, the agency asserted that the world was approaching “the beginning of the end” of the fossil fuel era. It predicts a decline in demand for oil, natural gas, and coal before the end of the decade due to the widespread adoption of renewable energy sources and electric vehicles.
The oil industry, particularly in the Middle East and the US, has raised objections to the projections put forth by the International Energy Agency (IEA). Despite the IEA’s forecasts of declining oil demand, global capital spending on oil and fields surged to $538 billion in 2023, reaching its highest level since 2019 in real terms. This increase in investment was largely attributed to state oil companies in the Middle East and China, indicating a significant push to ramp up crude production.
Haitham Al Ghais, the Secretary-General of OPEC, has criticized the IEA’s forecasts as “dangerous,” warning of potential “energy chaos on a potentially unprecedented scale” if producers halt investments in new oil and gas projects. The IEA’s latest report raises doubts about OPEC+’s ability to expand future production, as the alliance faces pressure from non-member countries, particularly the US.
Experience a surge in petrol consumption as more drivers
According to the IEA, OPEC+ saw its total oil industry share drop to 48.5% this year, the lowest since its formation in 2016, due to significant voluntary output cuts. Despite these cuts, the IEA predicts that OPEC+ would exceed the call on its crude oil from 2025 through 2030, indicating ongoing challenges in balancing supply and demand.
The report highlights that a majority of the world’s oil demand until 2030 will come from India and China. India is expected to experience a surge in petrol consumption as more drivers take to the roads, while China is investing in massive new petrochemical plants. In contrast, oil demand in OECD countries, which peaked in 2007, is projected to decline to 1991 levels by 2030.
However, the IEA cautions that its forecast for shrinking oil demand could be disrupted by minor changes in various factors. For instance, a slight increase in global GDP growth, a decrease in real oil prices, or a slowdown in the adoption of electric vehicles could lead to a resurgence in oil consumption by the end of the decade.
