Oil market set for oversupply through 2030, says IEA amid geopolitical tensions

The global oil market is entering a new phase of structural change as oil production capacity is expected to far outpace demand growth through the end of the decade, the International Energy Agency (IEA) said in its Oil 2025 medium-term outlook released on June 17.

The report warns, however, that mounting geopolitical risks, notably the intensifying Israel-Iran conflict, continue to pose a threat to supply security despite strong fundamentals.

According to the IEA, global oil production capacity is forecast to grow by over 5 million barrels per day (mb/d) by 2030, reaching 114.7 mb/d. Meanwhile, demand is expected to rise by just 2.5 mb/d from 2024 levels, plateauing around 105.5 mb/d by the decade’s end.

This growing surplus signals a potentially well-supplied market over the next five years, barring any major disruptions.

The agency attributed this supply growth to robust output from non-OPEC+ countries, particularly the “Americas Quintet”, the United States, Canada, Brazil, Guyana, and Argentina.

These nations are forecast to more than cover the projected increase in demand, even as the OPEC+ alliance gradually unwinds voluntary production cuts.

“From 2015 to 2024, the US accounted for 90 per cent of global supply growth. That pace is slowing, but it still remains the largest contributor to non-OPEC+ output,” IEA Executive Director Fatih Birol said. He added that oil markets remain structurally sound but vulnerable to geopolitical shocks.

China and US no longer primary demand-supply anchors

The report marks a significant turning point in global oil market dynamics. For over a decade, China and the US were the dual engines of oil demand and supply, respectively.

Chinese demand alone accounted for 60 per cent of global consumption growth over the past 10 years, while US shale production drove the majority of new supply.

However, that era may be ending. Chinese oil consumption is expected to peak by 2027 as electric vehicle (EV) sales soar, high-speed rail networks expand, and more trucks switch to natural gas. EV sales hit a record 17 million in 2024 and are projected to exceed 20 million in 2025, displacing an estimated 5.4 mb/d of oil demand globally by 2030.

Meanwhile, US oil output growth is slowing as shale producers reduce capital spending and prioritise returns over expansion. Despite this, the US remains the single largest contributor to non-OPEC supply growth through the decade.

Asia will drive future demand, led by India

While demand in advanced economies is expected to contract, Asia, particularly India, is set to lead the next wave of oil consumption growth. India alone is forecast to add 1 mb/d in new demand by 2030, making it the single largest contributor among individual countries.

“Asia dominates growth,” the report notes, citing continued industrialisation and rising transportation fuel needs across South and Southeast Asia. This shift underscores a broader rebalancing in global energy consumption patterns.

The petrochemical sector is also set to become the dominant source of oil demand growth from 2026 onwards. By 2030, the industry is expected to consume one in every six barrels of oil, primarily in the form of natural gas liquids (NGLs) and other non-crude inputs.

Geopolitical risks cast a shadow

Despite the projected supply surplus, recent geopolitical events have raised alarms over potential disruptions. On June 13, Israel launched air strikes on Iranian military and energy facilities, prompting retaliatory attacks.

Though there has been no immediate impact on Iranian oil exports, currently around 2.6 mb/d, fears of a wider conflict and a potential closure of the Strait of Hormuz pushed Brent crude futures to a six-month high of $74 per barrel.

Iran also reported production cuts at the South Pars gas field due to fire damage, while Israel halted over 60 per cent of its natural gas output amid security concerns. The Strait of Hormuz remains a critical chokepoint for global energy flows, with 25 per cent of the world’s oil supply passing through the narrow waterway.

“While fundamentals point to a well-supplied market, these recent developments are a stark reminder of the ongoing geopolitical fragility in oil markets,” Birol warned.

Refining and inventory trends

With oil demand for combustion fuels nearing a peak, global refining capacity is projected to exceed demand for refined products by 2030. This imbalance may lead to more refinery closures, especially in mature markets. Refinery throughput is forecast to rise modestly by around 460 kb/d annually in 2025 and 2026, reaching 83.7 mb/d.

Oil inventories have been rising steadily, with global stocks surging by 93 million barrels in May alone. Despite this, OECD inventories remain 97 million barrels below 2024 levels, reflecting ongoing volatility in market sentiment.

In the absence of major disruptions, the IEA projects a stable, oversupplied oil market through 2030. Yet, the shadow of geopolitical conflict and the energy transition underscores a fragile balance. As Birol concluded, “There is no room for complacency when it comes to energy security.”