The International Energy Agency announced in an annual report published on Wednesday, June 12th, 2024, that the Global Oil Market is likely to have a major surplus of oil by 2030 as production ramps up while clean energy transitions temper demand. This shift in the Global Oil Market is expected to push spare capacity to unprecedented levels and potentially upend OPEC+ market management.

According to an annual assessment from the IEA, global demand is predicted to "level off" at 106 million barrels per day (bpd) by the end of this decade, while total supply capacity may reach 114 million bpd. The Paris-based organization stated that this would lead to a "staggering" eight million barrel surplus for which the oil markets should brace themselves. IEA Executive Director Fatih Birol issued a harsh warning to Big Oil in response to the projection, stating that the biggest energy companies in the world might want to adjust their business plans to reflect the changes in the market. "Oil companies may want to make sure their business strategies and plans are prepared for the changes taking place," he said.

“As the pandemic rebound loses steam, clean energy transitions advance, and the structure of China’s economy shifts, growth in global oil demand is slowing down and set to reach its peak by 2030,” the IEA’s Birol said in a statement.

The prediction was made a few days after the major producers of crude oil, known as OPEC+, said they would begin to reduce their output this autumn. The goal of the production cutbacks was to keep prices high in the face of concerns about a slowdown in global demand. The International Energy Agency (IEA) projects that by 2030, overall oil production capacity will have increased to around 114 million barrels per day, an astounding 8 million barrels per day more than predicted global consumption.

“This report’s projections, based on the latest data, show a major supply surplus emerging this decade, suggesting that oil companies may want to make sure their business strategies and plans are prepared for the changes taking place,” Birol added.

The aviation and petrochemical industries, as well as rapidly rising Asian nations like China, will continue to fuel the world's oil consumption, which is expected to reach 102 million barrels per day in 2023, according to an IEA assessment. However, the shift toward electric cars along with fuel efficiency gains for conventional vehicles, and the declining use of oil by Middle Eastern countries for electricity production, would help limit the overall demand increase to around two percent by 2030.

The global energy watchdog stated that oil demand growth is expected to slow down and eventually reach its high of around 106 million barrels per day by 2030 in its most recent medium-term market analysis, Oil 2024. From little over 102 million barrels per day in 2023, that is an increase.

Global Oil Market
Image Source: Vajiram & Ravi

"Spare capacity at such levels could have significant consequences for oil markets -- including for producer economies in OPEC and beyond, as well as for the US shale industry," the IEA said. According to the IEA, this would lead to levels of spare capacity never before observed, except the peak of the Covid-19 lockdowns in 2020.

It issued a warning, stating that these dynamics may have "significant consequences" for the oil markets, the U.S. shale sector, and producing countries outside of OPEC. The study is released at a time when nations are trying to wean themselves off of fossil fuels and as support for energy-efficient and clean technology grows. The primary cause of the climate catastrophe is the use of fossil fuels like coal, oil, and gas.

According to the IEA, the proportion of fossil fuels in the world's energy supply has remained at over 80% for decades, but it is predicted to decrease to about 73% by 2030. Such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges" for the US shale industry and the OPEC+ bloc led by Saudi Arabia and Russia, the report said.

"Such a massive cushion could upend the current OPEC+ market management strategy aimed at supporting prices," it said. Except for the pandemic, the IEA predicted that consumption in advanced nations will continue a decades-long slide, dropping from 46 million bpd in 2023 to less than 43 million bpd in 2030. This will be the lowest level of demand since 1991. The IEA reduced its 2024 demand growth prediction to 960,000 barrels per day from 1.1 million barrels per day in its previous view in a separate monthly report on the world oil market.

In its May report, it reduced its estimate for 2025 from 1.2 million to one million bpd. The findings of that report were widely criticized by several OPEC+ producers, who advocate for dual investment in hydrocarbons and renewables until green energy can unilaterally fulfill global consumption needs.

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