Growth in the world’s demand for oil is set to slow almost to a halt in the coming years, with the high prices and security of supply concerns hastening the shift towards cleaner energy technologies, according to a new IEA report.

The Oil 2023 medium-term market report forecasts that based on current government policies and market trends, global oil demand will rise by 6 per cent between 2022 and 2028 to reach 105.7 million barrels per day (mb/d) – supported by robust demand from the petrochemical and aviation sectors. Despite this cumulative increase, annual demand growth is expected to fall from 2.4 mb/d this year to just 0.4 mb/d in 2028, putting a peak in demand in sight.

In particular, the use of oil for transport fuels is set to go into decline after 2026 as the expansion of electric vehicles, the growth of biofuels and improving fuel economy reduce consumption.

Global upstream investments in oil and gas exploration, extraction and production are on course to reach their highest levels since 2015, growing 11 per cent year-on-year to $528bn in 2023. While the impact of higher spending will be partly offset by cost inflation, this level of investment, if sustained, would be adequate to meet forecast demand in the period covered by the report. However, it exceeds the amount that would be needed in a world that gets on track for net-zero emissions.

The report’s projections assume major oil producers maintain their plans to build up capacity even as demand growth slows. This is expected to result in a spare capacity cushion of at least 3.8 mb/d, concentrated in the Middle East. The report nonetheless notes a number of factors that could affect market balances over the medium term – including uncertain global economic trends, the direction of OPEC+ decisions and China’s refining industry policy.

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