Even though growth in world oil demand will accelerate to 1.4 million barrels a day in 2020, it will be eclipsed by a 2.3 million barrel-a-day surge in output, as the ongoing boom in U.S. shale is augmented by new fields in Brazil, Norway and Canada.
As a result, the world will need significantly less crude from the Organization of Petroleum Exporting Countries, the IEA, which advises most major economies, predicted in its monthly report on Friday. Though Saudi Arabia and its allies have been deliberately cutting supply this year, and political crises have crushed exports from Venezuela and Iran, OPEC is pumping much more oil than will be required in 2020.
“A clear message from our first look at 2020 is that there is plenty of non-OPEC supply growth available to meet any likely level of demand, assuming no major geopolitical shock,” said the Paris-based IEA. “This is welcome news for consumers and the wider health of the currently vulnerable global economy, as it will limit significant upward pressure on oil prices.”
Oil in New York moved into a bear market last week and Brent sunk below $60 a barrel in London for the first time since January on concern that a slowdown in the global economy — exacerbated by the ongoing trade war between the U.S. and China — will hurt fuel consumption around the world. OPEC will meet in the coming weeks to decide its response.
The IEA report showed that the fears about demand are coming to fruition.
Global oil demand grew by 300,000 barrels a day during the first quarter, the weakest since 2011, as developing nations only just offset a drop in developed economies. The agency lowered growth estimates for 2019 as a whole for a second consecutive month, by 100,000 barrels a day.
For the rest of this year and into 2020, however, the IEA expects that demand will pick up markedly, averaging 1.2% in 2019 as a whole and 1.4% next year. That rebound assumes some progress in the trade stand-off between the U.S. and China, it said.
Even with its optimistic outlook for the economy, the agency sees growth in oil consumption being drowned by new supplies next year.
About half of the supply expansion will be provided by the U.S., which has been transformed by the fracking boom in Texas and North Dakota into the world’s biggest crude producer. But unlike in previous years, growth in America is being supplemented by significant gains elsewhere, such as in Norway and Brazil.
That may make for painful reading for the Saudis and other OPEC nations, who together pump 40% of the world’s oil.
The demand for their crude will slump for a third consecutive year, to 29.3 million barrels a day. That’s about 650,000 barrels a day less than the 14 OPEC nations pumped last month, when their supply was already significantly reduced as a result of a pact to restrain output, as well as by U.S. sanctions on Venezuela and Iran. Iran’s production fell to 2.4 million barrels a day, the lowest since the 1980s.
The organization and its allies are due to meet in the next few weeks to decide whether to keep going with their agreement to reduce output. Saudi Arabia, OPEC’s biggest member, has recommended persevering.
If OPEC reduces output next year to the levels the IEA considers necessary, production would be the lowest since 2003 — suggesting that its strategy to support oil markets has backfired.