IEA sees major oil capacity glut by 2030 as demand peaks

The world is facing a major oil capacity glut in the current decade that could trigger lower prices and test OPEC's market control as global oil demand peaks, the International Energy Agency said June 12.

Global oil demand, including biofuels, will likely level off near 106 million b/d toward the end of this decade, up from just over 102 million b/d in 2023, due to the boom in electric vehicles, renewable energy and fuel efficiencies, the IEA said in its latest annual mid-term outlook, "Oil 2024."

Total oil demand is still forecast to rise by 3.2 million b/d between 2023 and 2030, supported by increased use of jet fuel and feedstocks from the petrochemical sector.

As in recent years, oil demand growth will be underpinned by Asia's biggest economies, with growth in China driven by the petrochemical sector, while in India, transport fuels will see significant gains, the IEA said. By contrast, oil demand in developed economies is expected to continue a structural decline, falling from around 46 million b/d in 2023 to less than 43 million b/d by 2030, the lowest since 1991.

A year ago, the IEA had predicted that global oil demand would peak by the end of the decade after rising 6% to 105.7 million b/d through the 2022-2028 period.

S&P Global Commodity Insights forecasts global oil demand -- including biofuels -- peaking at around 109 million b/d in 2034, with a gradual decline in the following years and only falling below 100 million b/d in 2050. Commodity Insights forecasts demand averaging 104.8 million b/d in 2024.

Separately, the IEA cut its 2024 global oil demand growth forecast for a third consecutive month, trimming 100,000 b/d from the estimate, citing contracting demand in OECD countries and signs that Chinese demand growth slumped to just 95,000 b/d in April. Helped by an upward revision to its 2023 demand estimates, the IEA now sees world oil demand growing by just 960,000 b/d this year to average 103.2 million b/d.

"Oil's subdued outlook is expected to carry forward into 2025, with a modest increase of 1 million b/d reflecting lackluster economic growth, an expanding EV fleet and vehicle efficiency gains," the IEA said in its latest monthly oil market report.

The IEA's latest revision to its 2024 demand forecast puts it at increasing odds with the much more bullish outlook of OPEC producers. OPEC on June 11 reiterated its forecasts for global oil demand growth of 2.25 million b/d for 2024 and 1.85 million b/d for 2025. The US' Energy Information Administration also said June 11 that it sees oil demand rising by 1.1 million b/d this year to average 103 million b/d.

Capacity glut

With oil demand peaking in the coming years, the IEA predicted that surplus global supply capacity could reach "unprecedented levels" by 2030, potentially disrupting the current OPEC+ strategy aimed at price stabilization.

Total oil supply capacity will rise by 6 million b/d to 113.8 million b/d by 2030, the IEA forecasts, a "staggering" 8 million b/d above the projected global demand of 105.4 million b/d and the highest since the demand collapse of the 2020 coronavirus pandemic.

This anticipated surplus in global oil production capacity could upend the current market management strategies employed by OPEC+, posing significant implications for global crude markets, the IEA said.

"Such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges for producers in the US shale patch and the OPEC+ bloc. Given shale's short-cycle time frame and price reactivity, some output could be at risk ...moreover, reduced requirements for OPEC+ crude may put the alliance's market management to the test," the IEA said.

At 0845 GMT, Brent crude futures were trading around $82.31/b, about $10/b below early April's 2024 highs. Commodity Insights currently expects its assessed Dated Brent crude benchmark to average $81/b in 2025, down from $88.4/b in 2024.

Noting Saudi Arabia's recent shelving of plans to boost its crude output capacity by 1 million b/d, the IEA said excess supply could also tempt other OPEC products to scale back their oil capacity plans.

Outside the OPEC+ group, capacity additions amount to a total of 4.6 million b/d, or 76%, of the net increase to 2030, the IEA estimated. The supply growth will mostly come from the Americas, with the US alone accounting for 2.1 million b/d of non-OPEC+ gains, the IEA said, while Argentina, Brazil, Canada and Guyana contribute a further 2.7 million b/d combined.

"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," IEA executive director Fatih Birol said in a statement.

Despite Western sanctions, OPEC+'s second-biggest exporter Russia will largely maintain its oil production over the rest of the decade, the IEA predicts, as the giant Vostok project ramps up. Although Russian oil output is expected to decline by 260,00 b/d to 10.7 million b/d due to OPEC+ cuts, Russian production could rise to average 10.83 million b/d by 2030, the IEA said.