Has Big Oil Run its Course? Surplus of Oil Production Capacity Expected to Exceed Demand

The International Energy Agency (IEA) announced that a surge in global oil production, led by the U.S., is expected to exceed demand growth until the end of the decade. This could create a surplus of oil and challenge OPEC’s control of the market.

IEA Executive Director Fatih Birol advised major energy companies to adjust their business strategies accordingly. The IEA’s report, titled Oil 2024, predicts that oil demand will peak at around 106 million barrels per day by 2030, up from over 102 million barrels per day in 2023. Meanwhile, oil production capacity is expected to reach nearly 114 million barrels per day by 2030, creating a significant surplus.

This surplus is unprecedented except for the period during the Covid-19 lockdowns in 2020 and could greatly impact oil markets, including U.S. shale and OPEC economies. Birol noted that factors such as the slowing rebound from the pandemic, progress in clean energy, and changes in China’s economy are contributing to the slowing oil demand growth.

The report highlights the ongoing transition away from fossil fuels towards clean energy. While fossil fuels currently make up 80% of global energy supply, this is expected to drop to around 73% by 2030. Despite the overall slowdown, oil demand is still projected to be 3.2 million barrels per day higher in 2030 than in 2023, driven by growth in Asia and sectors like aviation and petrochemicals. However, in advanced economies, oil demand is expected to fall to below 43 million barrels per day by 2030, a level not seen since 1991, except during the pandemic.

In 2021, the IEA recommended against new oil, gas, or coal projects to achieve net zero emissions by 2050, a suggestion criticized by many OPEC members who support continued investment in both hydrocarbons and renewables until green energy can fully meet global needs.

Roberta Silverglate, California Business Journal