IEA Monthly Report: Oil Market Well-Supplied, but Geopolitical Risks Bring Uncertainty

On Tuesday local time, the International Energy Agency (IEA) stated that the global oil market is expected to remain well-supplied in the coming years. However, rising geopolitical risks in the Middle East and unresolved trade tensions could cast a shadow over this outlook.

In its monthly report, the IEA pointed out that as economic growth slows down and the transportation and power generation sectors gradually reduce their reliance on oil, oil demand is expected to peak at 105.6 million barrels per day (bpd) in 2029.

The IEA forecasts that global capacity is expected to increase by over 5 million bpd by 2030, reaching a peak of 114.7 million bpd, which will leave supply far exceeding demand. This stands in stark contrast to OPEC's view, which believes that oil consumption will continue to grow and has not predicted a demand peak.

Non-OPEC+ countries are expected to contribute approximately two-thirds of the global increase in oil supply, adding 3.1 million bpd of capacity, while OPEC+ countries will increase capacity by nearly 2 million bpd. The IEA stated, "During the forecast period, Saudi Arabia and the US will account for 40% of the world's new oil capacity."

OPEC+ is expected to continue significantly increasing supply in the coming period to regain market share and penalize member countries that have overproduced. However, the IEA believes that OPEC may face challenges due to still robust supply growth from competitors.

The IEA stated, "The oil market is undergoing a fundamental transformation as the drivers of global oil supply and demand patterns are changing. Over the past decade, the dynamics of the oil market have been defined by the simultaneous growth of US oil supply and oil demand in Asian countries."

However, with the continued rise in EV sales, oil consumption in some countries is expected to peak in 2027. Meanwhile, as producers cut spending, the growth of US oil supply will slow down.

By the end of this decade, EVs are expected to reduce oil demand by 5.4 million bpd, while the shift from oil to natural gas and renewable energy for power generation in the Middle East will also put pressure on oil consumption.

The Tuesday report was released when Brent crude was trading at around $74 per barrel and WTI crude at around $72 per barrel. Both benchmarks have surged recently after Israel launched a round of attacks on Iran, amid fears that the conflict could trigger a wider regional war and severely disrupt energy supplies.

The IEA stated, "With geopolitical and economic uncertainties affecting both oil-producing and consuming countries, oil supply security remains a critical issue on the international energy policy agenda."

"From a fundamental perspective, the oil market is expected to be well-supplied in the coming years, but recent events have strongly highlighted significant geopolitical risks to oil supply security," claimed Fatih Birol, Executive Director of the International Energy Agency (IEA).