In yesterday’s note, we contemplated a gradual price decrease below $70/bbl if oil output and traffic in the Middle East is not disrupted as a result of the weekend’s US attack on Iranian nuclear facilities. How wrong we were proven. Oil investors delivered a brutal verdict and after a very brief deliberation, they sentenced reluctant bulls to a daily loss of more than $5/bbl. The Iranian response to the US airstrikes was telegraphed via backchannels just like in 2020, when the assassination of an Iranian general by the US was swiftly followed by retaliatory missile strikes on US forces based in Iraq. This time the targets were US bases in Qatar and, similarly to 2020, no casualties were reported.

Yesterday’s sharp sell-off continued overnight as a truce between Israel and Iran is apparently within grasp. The US President announced a ceasefire between the warring nations plausibly ending the war, which started on June 13. There have been no reported Israeli attacks since the announcement and oil keeps plummeting registering another $3.50/bbl drop at the time of writing. If the truce holds, it will mark an undeniable foreign policy success for Donald Trump, whose actions will have possibly brought the Middle East back from the brink of a regional conflict with all its unwanted consequences on the global economy and oil supply.

It is not clear whether Israel’s offensive on Gaza will be dialled back, nonetheless, the geopolitical risk premium built up since the first Israeli strike on Iran almost two weeks ago has entirely vanished. Along with the $14/bbl drop in outright prices, the M1/M7 Brent spread has lost more than $4/bbl in two trading sessions. Whilst it is hard to believe that handshakes and hugs will take over from exchanges of missiles or sporadic attacks on commercial shipping in the Red Sea, there are growing hopes that investors will be able to focus on economic policies, instead of geopolitics and deal with the challenging aspects of what trade wars will offer in the coming months.

Sticking to the View

Alongside its flagship monthly Oil Market Report released last Tuesday, the IEA published its latest findings on the state of the global oil market through 2030. The broad picture shows no major deviation from last year’s outlook on the oil balance, and the IEA still anticipates peak demand earlier than other forecasters, such as OPEC. It continues to see oil demand peaking around the end of the current decade—a much more optimistic prognosis than that of the producer group.
The world’s two largest economies, the U.S. and China, have left a significant footprint on both supply and demand growth over the past decades. In addition to being the world’s largest consumer of oil, the U.S. has also become its most significant producer, thanks to the shale oil revolution. On the demand side, China has long been relied upon as the heartbeat of global growth. It is therefore both curious and important that the IEA sees their roles in global oil supply and demand growth dwindling between 2025 and 2030.

During the 2020–2024 period, China accounted for almost all the growth in global oil demand, with a contribution of 500,000 bpd. This addition is expected to plunge to zero over the next five years, primarily due to the widespread adoption of electric vehicles. U.S. supply growth, which averaged 600,000 bpd over the last five years, is projected to fall below 200,000 bpd in the next half-decade. As a result, the influence of these two geopolitical rivals on the global oil balance will diminish considerably.

The IEA forecasts global oil demand to grow by 2.5 mbpd between 2024 and 2030, though most of this expansion will occur in the first half of the period. From 2027 onwards, annual demand growth will be minimal and is projected to decline by 100,000 bpd between 2029 and 2030. There are two main reasons for this slowdown: first, the shifting global order—with the decline of globalization, the rise of trade wars, and growing fiscal imbalances—has led to weaker economic growth. Second, the transition from fossil fuels to renewables, while slower than initially projected, is clearly underway and continues to dampen oil demand growth. The most visible sign of this shift is the growing popularity of electric vehicles, particularly in China, which is expected to displace 5.4 mbpd of oil demand by 2030.

The projected 2.5 mbpd growth in oil demand between 2024 and 2030 will not be evenly distributed. The Asia-Pacific region will account for 2 mbpd of this increase, Africa for 900,000 bpd, while North America and Europe will together see a decline of 1.3 mbpd. Among oil products, gasoline and residual fuel oil are expected to decline by 1 mbpd and 500,000 bpd respectively. These losses will be more than offset by increases of 1.9 mbpd in LPG/ethane and 1.2 mbpd in naphtha consumption.

Global oil production capacity is expected to rise to 114.7 mbpd by 2030, an increase of 5.1 mbpd from today. This compares to an estimated demand of 105.5 mbpd. While not all production capacity will be utilized, the surplus implies adequate supply even in times of geopolitics-induced supply disruption. This growth will be driven primarily by natural gas liquids (NGLs) and other non-crude liquids, reflecting the anticipated demand for petrochemicals. Saudi Arabia and the U.S. will be key players in ensuring this supply expansion.

Overall, global oil production is forecast to increase by 4.1 mbpd by 2030, with Middle East output rising by 2.5 mbpd. North American output will grow by 900,000 bpd, as U.S. shale activity slows. OPEC+, which produced 49.9 mbpd in 2024 (including NGLs), is expected to reach 50.9 mbpd in 2030. Reconciling these figures reveals that the call on OPEC+ oil will decline from 41.6 mbpd in 2024 to 39.8 mbpd by 2030—well below projected production levels. Barring any geopolitical shocks, the IEA believes there will be ample oil supply in the coming years—an assessment OPEC would vehemently repudiate.

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