Oil, excess supply will cause prices to fall: the forecasts

A decade of excess supply it will do progressively oil prices fallperhaps also for this reason OPEC continues his rationing strategy of the supply by the cartel of the world's largest crude oil producers. The excess supply, compared to a decreasing demand, has also been certified by theInternational Energy Agencyin its medium-long term report.

Transition effect on demand

The new medium-term perspectives of the International Energy Agency predict oil markets well supplied until 2030although constant attention to energy security will remain crucial in the transition phase.

It is expected, in particular, that the growth in global oil demand will slow in the coming years, in parallel with the progress of the energy transition. At the same time, global oil production is set to increase, easing market tensions and pushing the unused capacity reaching unprecedented levelsexcept for the crisis experienced during the Covid pandemic.

“Global oil demand growth is slowing and will reach its peak by 2030. This year we expect demand will increase by approximately 1 million barrels per day”, said the IEA executive director Fatih Biroladding “this report's projections, based on the latest data, show a major supply surplus emerging this decade.”

The numbers of the oil market

The latest edition of the IEA annual report highlights that the strong demand by Asian economies rapidly growing, in particular China and India, as well as the aeronautical and petrochemical sectors, is destined to increase oil consumption in the coming years. This increase, however, will always be more plywood from factors such as the increase in sales of electric cars, the improvement in fuel efficiency of conventional vehicles, the reduced use of oil for electricity production in the Middle East and structural economic changes. It is expected that the oil demand in advanced economies will continue his decade-long declinefalling from nearly 46 million barrels per day in 2023 to less than 43 million barrels per day by 2030. As a result, the report predicts that global oil demand, including biofuels, will stabilize close to 106 million of barrels per day towards the end of this decade from approximately 102 million barrels per day in 2023.

At the same time, it is expected that the increase in global production capacityled by the United States and other producers in the Americas, will outpace demand growth between now and 2030 at almost 114 million barrels per day (8 million barrels per day more than expected global demand). Producers outside OPEC+ are leading the expansion of global production capacity to meet the expected increase in demand, accounting for three-quarters of the expected increase through 2030. The United States alone is poised to add 2.1 million barrels per day to non-OPEC+ supply, while Argentina, Brazil, Canada and Guyana contribute an additional 2.7 million barrels per day.

This will result in levels of unused capacity never seen beforeif not at the height of the Covid-19 lockdowns in 2020. Unused capacity at such levels could have significant consequences for oil markets, including OPEC-plus producing economies, as well as the US shale industry.

The trend in the price of crude oil

On the international markets of London and New York, a a barrel of oil is quoted today at 82.79 dollars for North Sea Brent grade and $78.64 for West Texas Intermediate grade (or Light Sweet crude oil). Evaluations which are substantially in line with the OPEC+ strategy of stabilizing supply. To this end, the cartel recently confirmed i additional production cuts announced last winter and extended them until the end of 2025.

Since the beginning of the year, oil prices have increased – Brent gained 7.5% and Light Crude over 10% – taking into consideration the rationing strategy of OPEC+, which also includes Russia and other important producers outside the cartel . However, 2023 was a year of passion for crude oil, which had lost more than 10% of its value, positioning itself at the lowest level since 2020.

Prices could drop further whether the scenario outlined by the IEA will occur in the next 10 years.