The International Energy Agency (IEA) expressed serious concerns about oil oversupply on the 12th (local time).
The agency warned that by 2030, the global oil industry could be suffering from an overproduction capacity exceeding daily demand by over 8 million barrels.
While nations are reducing oil consumption amidst the climate crisis, oil companies are increasing production, leading to predictions of an imminent severe oversupply in the oil market.
According to the IEA, this can undermine the oil price regulation ability of the Organization of Petroleum Exporting Countries Plus (OPEC+).
Surplus of Over 8 Million Barrels Per Day
In its annual report released on the same day, the IEA pointed out that while oil demand is expected to peak and then decline before 2030, investment in oil production continues.
As oil companies do not stop investing in expanding oil production, the IEA predicts that by 2030, the global oil production capacity will significantly exceed demand with an overproduction capacity exceeding 8 million barrels per day.
Entering An Era of Falling Oil Prices
The IEA predicted that with the oversupply of oil significantly exceeding demand, the market will have a large buffer and the oil price regulation efforts of OPEC+ will become futile, leading to a global era of falling oil prices.
The IEA expects that the global oil production capacity will reach its highest level ever, excluding during the COVID-19 pandemic.
During the early stages of the pandemic, oil demand sharply contracted when the global economy was locked down. At one point, U.S. oil prices even crashed to negative $30 per barrel.
According to the Financial Times (FT), Executive Director of the IEA Fatih Birol emphasized, “It’s not the first time that the oil market has reached a state of oversupply, but one important consequence will be downward pressure on oil prices.”
Birol warned that oil companies could face significant damage as oil demand slows down and supply decreases.
He advised that it was “time for many oil producers to reconsider their business plans.”
Oil Investment At Its Highest in Four Years
According to the IEA, global oil and oilfield capital expenditure reached $538 billion last year, the highest in four years since 2019 when adjusted for inflation.
Investments from oil companies in the Middle East and China increased significantly.
On the other hand, oil demand is expected to peak soon and then decline.
Birol pointed out that reduced gasoline demand due to the transition to electric vehicles along with the shift to renewable energy in the Middle East, led by Saudi Arabia, are also factors reducing oil demand.
Moreover, the slowing growth rate of China’s economy is also the main reason for the projected decrease in oil demand.
Birol said that China will probably be the most important factor, as it accounted for about 60% of the increase in global oil demand over the past decade.
Meanwhile, oil demand from the member countries of the Organization for Economic Cooperation and Development (OECD), a group of developed countries, peaked 17 years ago in 2007 and has been declining since.
By 2030, the oil demand from OECD member countries is expected to retreat to the levels of 1991.
