Energy watchdog warns of a’staggering oil glut’ by the end of the decade

International Energy Agency warns that the world will face a “staggering surplus” of oil by the end decade. This is equivalent to millions of barrels per day as oil companies continue to increase production.

The IEA’s annual report on industry, released on Wednesday, stated that while demand is expected to peak by 2030, continued investments by oil, led by the US would result by then in more than 8mn b/d spare capacity.

The IEA stated that this “massive buffer” of extra oil would “upend” Opec+’s efforts to manage the market, and bring in a new era of lower price, adding that it was unprecedented, outside of the coronavirus epidemic, for the amount of spare capacity.

Fatih Birol is the director of the agency. He said that this was not the first instance in which the oil market would experience an oversupply. However, one important result would be a downward pressure on prices.

He said that the combination of a slowing in demand and a rising supply could “have substantial implications” for oil firms. In my opinion, it is time that many oil producers review their business plans.

The Paris-based organization, which was founded after the Arab oil embargoes of 1970s, to provide advice on energy security, stated last year the world is at the “beginning of the end” for the fossil fuel age. The Paris-based body has stated that the demand for coal, oil and natural gas will start to decline before the end decade due to the massive roll out of renewable energy sources and electric vehicles.

Oil industry has criticized its projections, especially in the Middle East, and in the US where producers are increasing their investments to pump more crude.

In real terms, global capital expenditure on oil and gas fields reached $538bn by 2023. This is the highest level in recent years. State oil companies from the Middle East and China were primarily responsible for the increase in investment. They increased their spending by twice what it was 10 years ago.

Haitham al Ghais, Opec’s general secretary, described the IEA predictions as “dangerous” and warned that “energy chaos of a potentially unprecedented magnitude” could occur if producers stop investing in new oil or gas.

In its latest report, the IEA questioned whether Opec+ could expand production in the future, given that it was still being squeezed by other countries, notably the US.

The IEA stated that “this year, [the Opec+] has seen its total market share drop to 48.5%, the lowest level since the group was formed in 2016. This is due to the sharp voluntary cuts to output,” it noted. The IEA noted that even if Opec+ (a larger group including Russia) continued to make deep cuts, “it would pump crude oil above its call in varying degrees between 2025 and 2030”.

Birol identified three major drivers of oil demand peaking by the end decade: reduced petrol consumption as the world moves to electric vehicles; a shift by Middle Eastern countries, particularly Saudi Arabia, from oil to renewables for electricity generation; and a slower future growth rate in China.

He said that China was the main factor. In the last ten years, China accounted for 60 percent of the global oil demand increase.

Birol stated that the future drivers of growth will include increased aviation and “booming petrochemical sectors”. The IEA expects that petrol consumption in India will also increase as more people hit the road.

By 2030, the oil demand in OECD nations, which peaked at 2007 levels, would drop to 1991 levels. The IEA assumes a 3 percent annual growth in global GDP for the remainder of the decade.

The IEA warned that its projection of a shrinking oil consumption could be thrown off by “relatively small changes” in the world. The IEA warned that “relatively minor changes” in events could derail its forecast for shrinking oil demand.