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Global oil demand growth will almost halt in the coming years, peaking this decade, according to the International Energy Agency, with Chinese consumption slowing after an initial sluggish recovery.

“The shift to a clean energy economy is gaining momentum, with peak global oil demand in sight before the end of this decade as electric cars, energy efficiency and other technologies advance,” IEA Executive Director Fatih Birol said in a statement.

In its latest medium-term market report released on Wednesday, the agency forecast global oil demand under current market and policy conditions to grow 6% from 2022 to reach 105.7 million bpd in 2028, driven by the petrochemicals and aerospace sectors. .

However, annual demand growth will shrink from 2.4 million barrels per day this year to 400,000 barrels per day in 2028.

“The decline in advanced economies makes the global outlook even more dependent on China’s post-Covid pandemic reopening being able to sustain its initial momentum, which should eventually lift global trade and manufacturing,” the agency said, while also highlighting Beijing’s “hold-back”. consumption will peak in mid-2023 after recovering by 1.5 million bpd, but will lose momentum year-on-year to an average of 290,000 bpd between 2024 and 2028.

An “unprecedented realignment of global trade flows” and emergency releases from IEA members’ strategic oil reserves last year “allowed industrial stocks to recover and ease market tensions” amid rising demand, the World Energy Body said.

On the supply side, the IEA expects oil producers outside the influential coalition of the Organization of the Petroleum Exporting Countries and its allies — known as OPEC+ — to “dominate medium-term capacity expansion plans,” including U.S. and other U.S. producers. The IEA estimates global supply capacity will increase by 5.9 million bpd to 111 million bpd by 2028, with growth slowing due to the slowdown in the US. This will lead to a spare capacity reserve of 4.1 million barrels per day, targeting OPEC heavyweights Saudi Arabia and the UAE.

Russian output remains “cloudy” and the IEA predicts a decline due to sanctions on Moscow’s exports of oil and petroleum products since late last year, along with the exit of Western companies that facilitated production. The IEA now sees Russian supply likely to fall by a net 710,000 bpd over the six-year forecast period to 2028.

“Moscow’s ability to self-finance its operations in the oil industry and its access to Chinese equipment and services may avert a much steeper decline. But tightening Western financial measures imposed on Russia could also lead to a sharper downward trend,” the agency said. He estimates that 2.5 million barrels per day of Russian oil have been diverted from Western consumers to now find Asian buyers, creating a “two-tiered market”.

“The real transformation is coming”

The IEA continues to sound the alarm over ongoing investment in oil and gas, which is forecast to reach $528 billion in 2023, the highest since 2015, while meeting demand and exceeding “the amount that would be needed in a world that is getting on the right track. net zero emissions.”

“Oil producers must pay careful attention to the increasing pace of change and calibrate their investment decisions to ensure an orderly transition,” Birol said in a statement.

Toril Bosoni, head of the oil industry and markets division at the IEA, told CNBC’s “Street Signs Europe” on Wednesday that the global energy crisis that followed the outbreak of the Covid-19 pandemic and Russia’s invasion of Ukraine “really accelerated” the transition away from fossil fuels.

“So while we still have strong growth and oil demand this year as we’re seeing the last phase of the Covid recovery, in the medium term we’re really seeing all these policy measures that governments have put in place.” [and] changes that consumers make for price and other reasons have an impact.”

In a landmark 2021 report, the IEA urged no new oil, gas or coal development if the world is to reach net zero by 2050 – a move widely criticized by several OPEC+ producers who advocate dual investment in hydrocarbons and renewable sources, until such a time when green energy can unilaterally fulfill global consumption needs.

“A real transformation is coming,” Bosoni said on Wednesday, referring to the rise of electric vehicles and energy efficiency measures in all sectors.

In its Oil 2023 report, the IEA states that achieving the global goal of net zero emissions would require both policy and behavioral changes to monitor the impact of oil demand on electric vehicles.

“The adoption of stricter efficiency standards by regulators, structural changes in the economy and the ever-accelerating penetration of electric vehicles are expected to significantly moderate annual oil demand growth throughout the forecast.” The IEA predicts that more than one in four cars in 2028 will be an EV, with sales of nearly 25.9 million.

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