Global oil demand to peak before the end of the decade as energy transition gathers pace, IEA says

Global oil demand growth will trickle nearly to a halt in the coming years and peak this decade, according to the International Energy Agency, with Chinese consumption set to slow down after an initial pent-up recovery.  

“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.

In its latest medium-term market report, published Wednesday, the agency forecasts that global oil demand under current market and policy conditions will rise by 6% from 2022 to reach 105.7 million barrels per day in 2028 on the back of the petrochemical and aviation sectors.

Annual demand growth, however, will thin down from 2.4 million barrels per day this year to 400,000 barrels per day in 2028.

“The downturn in advanced economies renders the global outlook even more dependent on China’s post-Covid pandemic reopening being able to maintain its early momentum, which should eventually lift global trade and manufacturing,” the agency said, while stressing Beijing’s “pent-up” consumption will peak mid-2023 after a 1.5 million-barrels-per-day rebound but lose momentum to just an average 290,000 barrels per day year-on-year from 2024 to 2028.

An “unprecedented reshuffling of global trade flows” and emergency releases from the strategic petroleum reserves of IEA members last year “allowed industry inventories to rebuild, easing market tensions” amid demand pick-up, the world energy body said.

On the supply side, the IEA expects oil producers outside the influential coalition of the Organization of the Petroleum Exporting Countries and its allies — known as OPEC+ — to “dominate medium-term capacity expansion plans,” including the U.S. and other American producers. Global supply capacity will rise by 5.9 million barrels per day to 111 million barrels per day by 2028 in IEA estimates, with growth lulling amid a U.S. slowdown. This will lead to a spare capacity cushion of 4.1 million barrels per day, focused in OPEC heavyweights Saudi Arabia and the UAE.

Russian output remains “clouded,” with the IEA predicting declines as a result of sanctions on Moscow’s seaborne crude and oil products exports since the end of last year, along with the departure of Western companies that facilitated production. The IEA now sees Russian supplies likely to ease by a net 710,000 barrels per day for the six-year forecast period to 2028.

“Moscow’s ability to self-finance its oil industry operations and its access to Chinese equipment and services may stave off a far steeper decline. But a toughening of western financial measures imposed on Russia could also result in a sharper downtrend,” the agency said. It estimates that 2.5 million barrels per day of Russian crude has been diverted from Western consumers to now find Asian buyers, creating a “two-tier market.”