The new IEA report today said oil demand is set to rise to 104 million barrels a day (mb/d) by 2026, up 4 percent from 2019 levels.
Fatih Birol, IEA’s Executive Director, said: “For the world’s oil demand to peak anytime soon, significant action is needed immediately to improve fuel efficiency standards, boost electric vehicle sales and curb oil use in the power sector.”
Those actions – combined with increased teleworking, greater recycling and reduced business travel – could reduce oil use by as much as 5.6 mb/d by 2026, which would mean that global oil demand never gets back to where it was before the pandemic.
Asia will continue to dominate growth in global oil demand, accounting for 90 percent of the increase between 2019 and 2026 in the IEA report’s base case. Demand in many advanced economies, where vehicle ownership and oil use per capita are much higher, is not expected to return to pre-crisis levels.
On the supply side, the heightened uncertainty over the outlook has created a dilemma for producers. Investment decisions made today could either bring on too much capacity that is left unused or too little oil to meet demand. Only a marginal rise in global upstream investment is expected this year after operators spent one-third less in 2020 than planned at the start of the year.
IEA said the world’s oil production capacity is projected to increase by 5 mb/d by 2026. At the same time, the historic collapse in demand has resulted in a spare production capacity cushion of a record 9 mb/d that could keep global markets comfortable in the near term.
To meet the growth in oil demand to 2026 in the IEA report’s base case, supply needs to rise by 10 mb/d by 2026. The Middle East, led by Saudi Arabia, is expected to provide half that increase, largely from existing shut-in capacity.
The region’s expanding market share would mark a dramatic shift from recent years when the United States dominated growth. US supply growth is set to resume as investment and activity levels pick up, yet any increase is unlikely to match the lofty levels seen in recent years.
The refining sector is struggling with excess capacity. Shutdowns of at least 6 mb/d will be required to allow utilisation rates to return to normal levels. China, the Middle East and India continue to drive new capacity growth. As a result, Asian crude oil imports are forecast to surge to 27 mb/d by 2026, requiring record levels of Middle Eastern crude and Atlantic Basin production to fill the gap.
The petrochemical industry will lead demand growth, with ethane, LPG and naphtha together accounting for 70 percent of the forecast increase in oil product demand to 2026. Gasoline demand may have peaked, though, as efficiency gains and the shift to electric vehicles offset mobility growth in emerging and developing economies.
Demand for aviation fuels, the area that was hardest hit by the pandemic, is forecast to gradually return to pre-crisis levels. But a shift to online meetings and conferences – along with persistent corporate efforts to cut costs and hesitation by some citizens to resume leisure travel – could permanently alter travel trends.