OPEC's influence on world oil prices is at risk of dwindling, predicts the IEA.
The Paris-based International Energy Agency (IEA) announced on Wednesday that it expects global oil production to increase significantly, with the United States and nations in the Americas leading the way. This surge in oil production will greatly expand the world's spare capacity cushion, a level last seen during the coronavirus pandemic when oil prices significantly dropped.
The IEA predicts that by 2030, global oil supply will surpass global demand by an "overwhelming" 8 million barrels per day, according to their report on the medium-term oil market. "This is a major, major surplus and... might be one of the highest in the history," said Fatih Birol, the IEA's executive director, during a press conference.
The surplus could disrupt the current market management strategy implemented by OPEC+ aimed at supporting prices. The report suggests that the surplus might lead to a lower-priced market environment. OPEC didn't make any immediate comments when CNN requested for one.
In addition to the IEA's report, they also estimate that global oil demand will see a slow decrease for the rest of the decade. The agency predicts that demand will peak in 2029 and then contract slightly in 2030. There are several factors causing this slowdown in demand, with the accelerated deployment of clean energy technologies, such as the "explosion of EV sales," being one of the main reasons.
OPEC+, a cartel consisting of OPEC, Russia, and other oil-producing countries, has been holding back oil production for over two years, to prevent a large supply surplus that could lower prices and hurt their economies. Their output reductions currently stand at about 5.7% of the global crude supply.
Earlier in August, OPEC+ agreed to continue their deep output reductions into 2025, but they also planned to gradually reduce some of these cuts starting October 1.
Despite these cuts, oil prices have been gradually falling in recent months. Brent crude, the worldwide oil benchmark, has dropped by almost 9% since it reached a five-month high in early April, trading at $83 per barrel on Wednesday. In early April, the price was $91 when an Israeli airstrike on an Iranian embassy in Syria sent anxiety through the oil markets.
Similarly, West Texas Intermediate crude, the US benchmark, has fallen by 9% to trade at $79 a barrel on Wednesday. In early April, the price was nearly $87 per barrel.
Lower oil prices can be attributed to factors like record US oil production, expanded global supply, and concerns about decreased demand in China—the largest oil importer globally—as well as other significant economies.
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The surge in global oil production, predominantly led by the United States and nations in the Americas, could potentially impact the energy business of OPEC, as it may contribute to a higher spare capacity cushion and a lower-priced market environment.
The expansion of clean energy technologies, such as the "explosion of EV sales," is expected to contribute to a slow decrease in global oil demand for the rest of the decade, potentially impacting the energy business of oil-producing entities like OPEC.
