The demand for oil in the world will decrease
World oil demand is likely to fall sharply over the next five years, the International Energy Agency said Wednesday, as a shift to electric vehicles and other cleaner technologies brings global oil consumption growth to a near halt.
“The shift to a clean energy economy is gaining momentum, with a peak in global oil demand in sight before the end of this decade,” Fatih Birol, executive director of the agency, said in a press release.
The assessment, which envisions a decline in global gasoline consumption after 2026, will make for gloomy reading for OPEC and other oil producers. It raises the long-debated prospect of “peak oil” – the point at which oil production peaks and begins to decline – but in this case the leveling off would be due to weakening demand, rather than shrinking petroleum supplies.
And the forecast comes amid a continued decline in oil prices, which have failed to respond to recent production cuts orchestrated by Saudi Arabia.
Brent crude prices, now about $75 a barrel, are about a dollar below levels before Riyadh announced a cut of one million barrels a day on June 4, or about 1 percent of global inventories.
Concerns about the outlook for global oil demand may explain this market slump, analysts say. The agency’s report is likely to add to fears among oil traders that China, the main driver of global oil demand growth for decades, is no longer fulfilling this role.
China is by far the largest electric vehicle market in the world and the economic recovery from the “zero Covid” lockdowns has not been as strong as some economists had predicted. Oil consumption growth is expected to slow, especially in the final years of the forecast, which runs through 2028.
There is an “urgent realization that China’s economic recovery from Covid is not driving the same growth in oil demand as China did before the pandemic,” said Henning Gloystein, a director of Eurasia Group, a political risk firm.
The International Energy Agency, which monitors energy trends on behalf of industrialized countries, predicts that by the end of 2028 more than 155 million electric vehicles will have been sold worldwide, half of them in China. These vehicles will ensure that three million barrels of oil per day per day that may have been consumed will instead remain in the ground.
The agency is actually more positive on the near-term outlook for oil than some other forecasters. The report predicts world demand will rise by as much as 2.4 million barrels per day in 2023, a modest increase from a report published last month and a view some analysts see as overly optimistic.
In later years, however, the agency sees growth slowing, especially in road transport, thanks to increasing numbers of electric vehicles, the growth of so-called biofuels (which generate energy from sources such as agricultural waste and used cooking oil) and greater efficiency.
Gasoline consumption, which accounts for about a quarter of the world’s demand for oil products, will decline after 2026, the bureau predicts.
The growing aviation industry, for which it is difficult to replace oil, and the demand for petrochemicals (used to make a wide variety of materials, including plastic bags, patio furniture and car parts, among other things) will be the pillars of any future growth , the agency says.
The agency said plans for investment in oil and gas production were 47 percent below 2014 levels in real terms, due to prospects of declining oil demand growth and the impact of the pandemic. However, the industry is expected to increase such spending by 11 percent by 2023.
Much of the spending is in the Middle East, where Saudi Aramco and Adnoc, Abu Dhabi’s national oil company, are increasing capacity.
Some European oil giants have gradually reduced their oil production, although Shell said on Wednesday it would keep production stable until the end of the decade to rake in cash.