Oil demand set to peak this decade as energy transition takes hold

This article was published by The Energy Mix on June 17, 2024.

By Mitchell Beer

Global oil demand is set to peak this decade, producing a surplus of millions of barrels per day that will start driving down production within a few years, the International Energy Agency (IEA) concludes in an analysis released last week.

“Growth in the world’s demand for oil is expected to slow in the coming years as energy transitions advance,” the IEA says in a release. “At the same time, global oil production is set to ramp up,” pushing the world’s over-supply to a “staggering” eight million barrels per day, a level “unseen outside of the COVID crisis.”

In response, the growth in production “is forecast to lose momentum and swing into contraction” toward the end of this decade.

The Energy Mix Weekender has a commentary on why this report points toward the end of the road for Big Oil.

The IEA analysis still shows oil production approaching 106 million barrels per day by the time it levels off toward the end of the decade. Daily output will increase by a projected 3.2 million barrels between 2023 and 2030 “unless stronger policy measures are implemented or changes in behaviour take hold,” with fast-growing economies in Asia plus demand from the aviation and petrochemicals sectors “set to drive oil use higher in the coming years,” the Paris-based agency writes.

“But those gains will increasingly be offset by factors such as rising electric car sales, fuel efficiency improvements in conventional vehicles, declining use of oil for electricity generation in the Middle East, and structural economic shifts.”

Oil demand in advanced economies “is expected to continue its decades-long decline, falling from close to 46 million barrels per day in 2023 to less than 43 million barrels per day by 2030,” the IEA says. “Apart from during the pandemic, the last time oil demand from advanced economies was that low was 1991.”

“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,” said IEA Executive Director Fatih Birol. With a major oil surplus looming, he added, “oil companies may want to make sure their business strategies and plans are prepared for the changes taking place.”

While the numbers underscore the need for tougher energy transition and emission reduction policies worldwide, the slowdown in demand has already prompted Saudi Arabia to “put on hold its planned crude oil capacity increase” and shift its focus to feedstocks for plastics and petrochemicals, the IEA states in the executive summary of the report. “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.”

The Organization of the Petroleum Exporting Countries (OPEC) declared the IEA’s “unrealistic scenario” a “dangerous commentary, especially for consumers, [that] will only lead to energy volatility on a potentially unprecedented scale.” The IEA sees production growth from OPEC and its allies stagnating through 2030, with most of the limited expansion around the world coming from other countries.