The International Energy Agency (IEA) recently released its Oil 2024 report, which examines the global dynamics for oil supply security, refining, trade, and investment. The report received considerable media attention because of the projection that by 2030 oil production will reach “a staggering 8 million barrels per day above projected global demand.”
The report cites the proliferation of electric vehicles, the growing utilization of renewable energy, and China’s declining oil consumption growth are key contributors to this projected trend. However, the IEA still expects oil demand to grow. From a global base of 103.2 million barrels per day (BPD) in 2024, the IEA believes demand will grow to 105.6 million BPD by 2029 and decrease slightly to 105.5 million BPD in 2030 (Table 2 in the report).
Supply growth is expected to be largely driven by non-OPEC+ countries, particularly the United States, Brazil, Guyana, and Canada, which are projected to pump at record levels. Non-OPEC+ countries are predicted to add 6 million BPD of supply by 2030.
In contrast, OPEC+ output is expected to remain relatively steady, with voluntary production cuts being a significant factor in maintaining market stability. The imbalance is projected to have far-reaching implications for geopolitics and may diminish OPEC’s capacity to influence oil prices.
The IEA makes its supply projections in part by looking at announced projects. However, to project a supply excess, the IEA also must make assumptions regarding depletion in existing fields, future discoveries, and demand trends.
In 2016, Bloomberg made a similar prediction in Another Oil Crash Is Coming, and There May Be No Recovery. The article looked at trends of electric vehicle sales, and wrote “If that level of growth continues, the crash-triggering benchmark of 2 million barrels of reduced demand could come as early as 2023.” I took exception to the assumptions that were made in the Bloomberg article and concluded:
“Thus, don’t be surprised in 2023 to see that instead of crude oil demand being 2 million bpd lower than today per the Bloomberg article, we see that oil demand grew despite the continued growth of electric vehicles.”
That is in fact what happened. Global oil demand in 2023 was around 5 million BPD higher than it was in 2016 when Bloomberg made the prediction, and as we know oil prices in 2023 certainly didn’t signal an oversupply.
But consider what might have happened if the markets took the Bloomberg projections at face value. If investments in oil projects had dried up because of the predicted supply excess, instead of oil prices averaging $78 per barrel in 2023, they might have averaged $130-$150 as supply fell short of demand. Volatile prices can be a consequence of wrong projections.
The bottom line is that it is hard to make these projections, as Bloomberg learned. For that matter, if you had predicted in 2005 that U.S. oil production would grow at the fastest rate of any country over the next decade, energy analysts everywhere would have laughed. But that’s exactly what happened.
I don’t know if the IEA projection will prove to be accurate. I do know that over the past 10 months, U.S. oil production — although still near record levels — has flattened. Most of the best tight oil sites in the U.S. have been drilled. U.S. oil production may be reaching a plateau, while the IEA is projecting another 2 million BPD of growth in the U.S. by 2030.
There are many assumptions behind the IEA’s projection. All it takes is for one or two of those assumptions to be wrong, and the IEA’s projections of a “staggering” excess could be staggeringly wrong.
By Robert Rapier via rrapier.com