Slowing demand growth and surging supply are set to drive up oil market surplus.
Growth in the world’s demand for oil is expected to slow in the coming years as energy transitions advance. At the same time, global oil production is set to ramp up – easing market strains and pushing spare capacity towards levels unseen outside of the Covid crisis, according to new IEA’s report.
A ramping up of world oil production capacity, led by the United States and other producers in the Americas, is expected to outstrip oil demand growth between now and 2030, inflating the world’s spare capacity cushion to levels that are unprecedented, barring the Covid-19 period.
A ramping up of world oil production capacity, led by the United States and other producers in the Americas, is expected to outstrip demand growth over the 20232030 forecast period and inflate the world’s spare capacity cushion to levels that are unprecedented, barring the Covid-19 period. Total supply capacity rises by 6 mb/d to nearly 113.8 mb/d by 2030, a staggering 8 mb/d above projected global demand of 105.4 mb/d.
Global oil markets will need to traverse myriad challenges in the medium-term as structural shifts reshape oil demand and trade flows, while rising oil supplies could potentially weigh on prices through the end of the decade.
Divergent regional economic trajectories and the accelerating deployment of clean and energy-saving technologies are combining to progressively slow the pace of oil demand growth, with a plateau emerging in the final years of our forecast, which runs to 2030. Emerging economies in Asia, particularly China and India, account for all of global demand growth. By contrast, oil demand in advanced economies falls sharply.
Rising world oil supplies, led by nonOPEC+ producers, are expected to surpass forecast demand from 2025 onwards. Mirroring demand’s break with long-term trends, a front-loaded build in oil production capacity is forecast to lose momentum and swing into contraction towards the end of our medium-term outlook. A surge in natural gas liquids (NGLs) and condensates will account for 45% of new capacity increases over the forecast period. In a major shift in strategy, Saudi Arabia has put on hold its planned crude oil capacity increase and will now focus on expanding natural gas liquids and condensates, which aligns with its efforts to boost domestic gas supply. It may also reflect an acknowledgment of the rapidly building surplus in global crude oil production capacity. The rise of petrochemicals as the main pillar of global demand growth largely tracks the substantial increase in global supply of NGLs, which are instrumental in their production.
At the same time, these changes will also create new challenges for refiners as demand for refined products is displaced by non-refined products such as NGLs and biofuels. Non-refined fuels are set to capture a staggering three-quarters of projected global demand growth over the 2023-2030 period. Moreover, refiners will need to reconfigure their product slates to meet divergent trends for distillates amid reduced consumption as the energy transition accelerates. This is especially the case in road transport fuels as EVs rapidly increase their market share.
Amid all these structural changes to supply and demand patterns, the global oil market outlook faces further uncertainties from weaker macroeconomic expectations, new government policies and regulations to fast-track the energy transition, and an unprecedented level of investment to scale up more efficient technologies.
/IEA/