"The Corona Virus crisis is adding to the uncertainties the global oil industry faces as it contemplates new investments and business strategies. The pressures on companies are changing. They need to show that they can deliver not just the energy that economics rely on, but also the emissions reductions that the world needs to help tackle our climate challenge. - Dr. Birol"
The arrival of Corona Virus is shaking the global oil market that was already facing challenges. On the demand side, the growth of the oil market in 2019 was significantly weaker than expected and new vehicle efficiency measures began to weigh on transport fuels. Refining capacity additions in recent years have outstripped demand growth, bringing tough competition to an industry that is already challenged by tightening product specifications, in particular the new International Maritime Organization (IMO) bunker rules introduced at the beginning of 2020.
Geopolitics remains a wild card on
the supply side. Production losses from Iran, Libya and Venezuela have
increased to 3.5 mb/d since the beginning of 2018. Even before the outbreak
of COVID-19, markets had been over-supplied, leading OPEC+ producers to reduce
their output. Looking beyond the short term, the oil market appears to have
been comfortably supplied through 2025.
Following the contraction in 2020 and
the expected sharp rebound in 2021, global oil demand growth is set to decline
as vehicle fuel consumption increases more slowly. Global oil demand is
projected to grow at an average annual rate of just under 1 mb/d between 2019
and 2025. Petrochemicals are becoming increasingly important drivers, with naphtha,
liquefied petroleum gas (LPG) and ethane responsible for half of all growth.
Efforts to improve the sustainability of the plastics industry will be
countered by a steady increase in consumer demand in developing countries. Bans
on single-use plastics and recycling, even if fully implemented, will displace
only a very small amount of oil demand. By 2025, global demand for oil has
risen by a total of 5.7 mb/d, with China and India accounting for about half
of growth.
At the same time, the world's oil
production capacity is expected to increase by 5.9 mb/d. Non-OPEC supplies
will increase by 4.5 mb/d while OPEC builds another 1.4 mb/d of
crude and natural gas liquid capacity. This assumes that there is no
change to the sanctions imposed on Iran or Venezuela. The United States is
leading the way as the largest source of new supplies. Given its enormous
resource potential, it could produce even more if prices end up higher than
expected in this report. Brazil, Guyana, Iraq and the United Arab Emirates are
also making impressive gains.
Strong growth in Asian oil demand creates major opportunities for oil-producing countries that can boost exports. However, growth in non-OPEC production is set to lose momentum after a few years, indicating a greater role for OPEC+ countries. The pace of expansion in the US is slowing as independent producers cut spending and scale back drilling in response to investor pressure. Deceleration in the US and other non-OPEC growth since 2022 will allow OPEC producers in the Middle East to tap into the balance of the oil market, thus increasing their importance to oil-consuming countries.
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