The IEA expects global oil demand to peak in 2030
Will global oil demand continue to grow significantly in the coming years, as some major oil-producing countries claim? Or will the curve be more like the one envisaged by the International Energy Agency (IEA), which sets the oil peak around 2030?
The impact of Riyadh on global oil demand
The question becomes more interesting when read together with an unexpected decision made by Saudi Arabia yesterday: the Gulf monarchy has canceled plans to expand the production capacity of Saudi Aramco, the national oil company. “Saudi Aramco announces that it has received a directive from the Ministry of Energy to maintain its maximum sustainable capacity (MSC) at 12 million barrels per day and not to continue increasing this capacity to 13 million as planned,” the company writes in a note.
Only last November, on the eve of the Cop28 in Dubai, Saudi Aramco announced that it would continue with the expansion. A multi-billion dollar plan that would bring the kingdom’s production capacity to 13 billion barrels a day (bpd) by 2027, and made sustainable by the projected increases in global demand for oil driven primarily by India and China. Today Riad produces about 9 million bpd, after having lowered the output under the Opec+ plan to keep oil prices high and avoid a surplus of supply.
Strategy or tactics?
Behind the Saudis’ move, however, could be more tactics than strategy. The kingdom needs a barrel price of about 108 dollars to balance the budget, in which oil revenues still represent the main share despite the first steps taken in diversification. The price of oil, today, is much lower: the Brent travels at 80 $/barrel.
Changing plans, therefore, could put markets in turmoil by exploiting one of the main strengths of the country. Riad is the only global player to have a significant spare capacity, which is the potential to increase production in a short time to cushion any shocks. Reducing spare capacity means making any international shock more risky. Such as, for example, the interruption of maritime traffic across the Red Sea due to the regional branches of the war in Gaza.