IEA raises 2023 demand growth forecast by 200,000 b/d, sees demand peak this decade

The International Energy Agency on June 14 raised its forecast of world oil demand growth in 2023 by 200,000 b/d to 2.4 million b/d, while forecasting oil demand for transportation to peak in 2026 and an overall peak in oil demand "in sight" by the end of the decade.

The Paris-based organization highlighted China's resurgence as it raised its annual demand estimate for 2023 in its monthly oil market report, saying a market struggling for direction seemed to be overlooking key consumer nations.

It forecast demand to moderate in 2024, with growth of just 860,000 b/d, but said slower production growth in the US combined with OPEC+ output cuts could make for a tight market. "This could leave the market in deficit in 2024, with the second half looking particularly tight," the IEA said.

However, on the same day, the IEA also published its annual five-year outlook, "Oil 2023," showing signs of oil demand approaching a peak over the period, and "strains" in the market starting to ease.

The report said oil demand for combustion purposes -- rather than petrochemical manufacturing -- would peak in 2028, although it acknowledged that overall oil demand would continue to rise through the forecast period.

Global oil demand rises 6% to 105.7 million b/d through 2022-28 under the five-year forecast. However, annual increases shrink to 400,000 b/d in in 2028. Aviation underpins growth early in the period, with Asia's petrochemical demand dominating later. And gasoline demand starts to decline on an annual basis in 2024. India supersedes China as the driver of demand growth in 2027.

"The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade as electric vehicles, energy efficiency and other technologies advance," IEA Executive Director Fatih Birol said in a statement.

"Oil producers need to pay careful attention to the gathering pace of change and calibrate their investment decisions to ensure an orderly transition."

S&P Global Commodity Insights forecasts that oil demand will peak at some 111 million b/d in 2031, but be sustained at that level for much of the 2030s, only seeing significant decline from 2039. Commodity Insights forecasts demand reaching 109.5 million b/d in 2028.

Investment recovery

The IEA's five-year report forecast global spare production capacity of 3.8 million b/d thanks partly to growth in South America. Supply growth in the period is dominated by the US and non-OPEC countries in the Americas such as Guyana and Brazil, as upstream oil and gas investment recovers.

Upstream investment is set to recover in 2023 to its highest since 2015, the IEA forecast. But this recovery -- putting the world on track to meet demand over the five-year period -- also puts the world on a path to missing net-zero emissions targets, it said.

Within the overall supply picture, the Middle East reinforces its role in the coming half-decade, with its market share rising from 30% in 2023 to 32% in 2028, it said.

"It's clear that the industry needs to continue to invest. Given the current policy context and our projections for demand, the increased investment will be required through the forecast period," the head of the IEA's oil industry and markets division, Toril Bosoni, told journalists in a briefing. "One year of increased investment levels may not be enough to keep the market supplied over the medium term so we're saying that these investment levels should be sustained."

Under the five-year forecast, Russia's production capacity falls by 700,000 b/d between 2022 and 2028, slower than previously expected, as the country offsets the impact of sanctions through its redirection of flows elsewhere in the world and access to technology from China.

In the downstream meanwhile, global capacity rises by 4.4 million b/d over the period, with 6 million b/d of capacity additions, largely in Asia.