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The Decline of Oil's Reign in Energy Sector

The global energy landscape is on the brink of a transformative shift. According to the International Energy Agency (IEA), the world is set to face a "staggering" excess of oil by the end of the decade. This surplus is primarily driven by continued investments in new oil projects, despite the global shift towards net zero emissions.


The IEA's Oil 2024 report highlights several key factors contributing to this impending glut and outlines the potential geopolitical and economic ramifications. It forecasts an "unprecedented" glut of oil by 2030, which could severely disrupt the market control traditionally wielded by the OPEC+ cartel. This surplus, driven by the ramping up of production capacity is expected to outstrip demand growth over the 2023-2030 period.


Several factors are contributing to the decline in oil demand:


The adoption of EVs is accelerating. The IEA predicts that more than 20% of cars sold globally will be electric within a few years. EVs are becoming increasingly cost-competitive with traditional internal combustion engines, reducing the demand for oil.


Countries in the Middle East and North Africa, which currently use significant amounts of oil for electricity generation, are transitioning to renewables or natural gas. This shift is expected to decrease oil demand by about 1.5 million barrels per day.


As China, the world's largest oil importer, experiences slower economic growth, its oil demand is also expected to decline. The growth rate is projected to slow from 6% to 4% annually, leading to a significant reduction in oil consumption.


On the supply side, the United States has dramatically increased its oil production, from about 5 million barrels per day in 2010 to 13 million barrels per day by March 2024. This surge in production is a key driver of the anticipated surplus.


The potential oil surplus has significant geopolitical implications. Middle Eastern producers, who have long influenced global oil prices through the OPEC, could see their power diminish further. The rise of US shale producers has already challenged this dominance, and a surplus would only exacerbate the shift in power dynamics.


Moreover, the economic implications are profound. Refinery closures in Europe and the US are already on the horizon, as the market adjusts to the new realities. The IEA emphasizes the need for governments and energy companies to recalibrate their policies and business plans in light of these changes.


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