As the push for cleaner fuels and greater efficiency offsets the effects of lower prices, the oil market will remain oversupplied until the end of the decade, according to the International Energy Agency.
It is estimated that oil demand will increase by less than 1% per annum across the next five years. This is slower than required to wipe up the excess supply that has forced prices to multiyear lows.
“Demand is not as strong as we have seen it in the past as a result of efficiency policies,” said Fatih Birol, the Executive Director of IEA. The slowdown in demand growth follows a 15-year surge in consumption, which was driven by the rapid industrialisation of China and other emerging market economies (1).
China is heading towards a more consumer-led economy, moving away from dirtier fuels and to less energy-intensive growth.
After 2020, oil demand growth is expected to almost stop completely, increasing just 5% across the next 20 years without costing more than $80 per crude oil barrel until 2020 (1).
Energy needs are rising globally, and $630 in investments is needed annually as “big energy companies are underestimating the effects of all of these things on the demand side,” Birol said (1).
Forecasting long-term oil prices continues to be extremely difficult. Two years ago, the IEA had said that although the rise of US shale oil would “shake” the energy world, a period of oversupply did not await (1).
(1) The Financial times. ‘Oil glut to swamp demand until 2020’. ft.com