July 01, 2025 [ Procurement Magazine ]- The International Energy Agency’s Oil 2025 outlook suggests a landscape where oil supply will grow more rapidly than demand through the end of the 2020s.
The global oil sector is navigating uncharted waters.
As geopolitical tensions like the Israel-Iran conflict highlight immediate concerns, the International Energy Agency’s (IEA) Oil 2025 outlook presents a broader perspective. It suggests a landscape where oil supply will grow more rapidly than demand through the end of the 2020s.
This dynamic, influenced by shifts in trade, regulatory changes and modifications in key sector demands, is poised to reshape the global oil supply chain.
Fatih Birol, Executive Director of the IEA, notes: “When we look at oil market trends over the past decade, we see a remarkable double act – thanks to the shale revolution, the United States has accounted for 90% of oil supply growth worldwide, while 60% of the rise in global demand has come from China. But these dynamics are shifting.”
Demand slows as alternatives emerge
According to the IEA’s report, while global oil demand is anticipated to grow by 2.5 million barrels per day (mb/d) from 2024 to 2030, reaching 105.5 mb/d, this growth is concentrated in the earlier years.
Post-2026, it levels off with a projected downturn by 2030. Contributing factors include weakened economic prospects, the rise of electric vehicles (EVs) and the shift towards renewables and natural gas, primarily for power generation.
Transport and power sectors, historically major oil consumers, are expected to stabilise their consumption. Saudi Arabia is among those transitioning from oil-based power to gas and renewable sources. Simultaneously, the EV market is set to flourish, with anticipated sales exceeding 20 million by 2025. By 2030, EV adoption could replace 5.4 mb/d of oil demand.
Petrochemicals are emerging as a key influencer on oil demand. From 2026, they are expected to drive most growth, with the sector utilising one in six barrels by 2030, largely for plastics and synthetic fibre production, underpinned by escalating natural gas liquids (NGLs) supplies, especially from China and the US.
Combustible fossil fuels, excluding those for petrochemicals and biofuels, may peak as soon as 2027.
Production capacity surges amid challenges
Oil production capacity is slated to increase by more than 5 mb/d, reaching 114.7 mb/d by 2030, with expansion mainly from US, Canada, Brazil, Guyana, Argentina and the OPEC+ alliance, particularly driven by NGLs catering to petrochemical needs.
OPEC+ projects a net capacity hike of 2 mb/d, spearheaded by Saudi Arabia, UAE and Iraq. NGLs and condensates comprise over 60% of this growth, significantly supported by Saudi Arabia’s Jafurah gas field. While Kazakhstan sees early capacity additions, Mexico faces pronounced setbacks, with a forecasted output decline of 630 kb/d.
Sanctions on nations like Iran, Russia and Venezuela impede finance, equipment and market accessibility. Nonetheless, alternate trade routes continue to facilitate oil flow. Iran retains its place as a top supplier to China, despite stringent US sanctions, and Venezuela, reliant on diluents for its heavy crude, now looks to Russia, Iran and China.
Russia, grappling with a 600 kb/d decline post-Ukraine conflict, has delayed its Vostok Oil project to 2026 due to sanctions and equipment shortfalls but is seeking to localise supply chains by developing indigenous rigs and fracking technologies.
Refineries face structural challenges
The refining sector is undergoing structural realignments, with net global refining capacity likely to outpace demand by 2030, prompting potential closures, particularly in high-cost regions. This surplus stems from reduced refined product demand and heightened NGL consumption for petrochemicals.
European refiners encounter rising hurdles under the EU’s Emissions Trading System (EU-ETS), as compliance costs soar. Emissions allowance prices have more than doubled since 2021 and, by 2030, free allowances are set to fall over 40% from 2020 levels, compelling refiners to invest in green hydrogen and efficiency gains amid fluctuating natural gas prices.
Shipping sectors feel the effect too, with the EU-ETS now encompassing maritime transport, adding carbon costs to intra and some extra-EU voyages, driving up freight costs and squeezing refinery export margins. With looming regulations like FuelEU Maritime and stringent sulfur norms, demand for petroleum-based marine fuels is anticipated to dwindle. Complex coastal refineries may weather this, but smaller operations are likely to struggle.
Trade flows are adapting, dominated by NGLs and petrochemical feedstocks, with sanctions and regional policy reshaping trade dynamics. Countries like Russia and Venezuela are pushing non-Western trade links and domestic capacities to sidestep sanction disruptions.
Assuming stability, the IEA predicts a well-supplied market to 2030. Nonetheless, with evolving dynamics like EV adoption, sanctions, and emission policies, rapid adaptation is crucial.
The IEA underscores that industry flexibility, diversification, and investment in low-carbon technologies will be vital for navigating the future landscape effectively. – By: Tom Chapman
