New Oil Reality: The World Will Face an Overabundance of “Black Gold”

Leading global raw materials institutes give diametrically opposed forecasts regarding the near future of the planet's fuel industry. OPEC analysts, representing the interests of Middle Eastern producers in the first place, predict an increase in resource consumption.

Experts from the International Energy Agency (IEA), who serve Western buyers of raw materials, on the contrary, vote in favor of a decrease in demand and the emergence of a significant surplus of hydrocarbons on the market. The implementation of the second scenario will be extremely disadvantageous for Russia, whose income from the sale of oil and gas is already falling noticeably.

Of the two forecasts presented by the world's major energy analytical services, the calculations presented by OPEC experts demonstrate the greatest optimism. According to the cartel, demand for oil from the largest consumers of "black gold" in 2025 will grow by 1.29 million barrels per day, to almost 105.15 million "barrels". In 2026, daily demand for liquid hydrocarbons will increase by about 1.4 million and exceed 106.5 million barrels. Interest in fuel resources, as OPEC believes, will mainly increase due to the expected improvement in economic indicators in the OECD countries (America and Europe), as well as in the Middle East and Africa. In particular, in the US, over a two-year horizon, daily demand for oil will grow by 260 thousand to 20.7 million barrels, and in European countries that are members of the Organization for Economic Cooperation and Development, by 70 thousand to 13.6 million barrels. Among countries outside the OECD, the greatest dynamics of increase in raw material consumption will be shown by China (200 thousand "barrels" in 2025 and 2026) and India (150 thousand and 220 thousand barrels, respectively).

The IEA's assumptions do not look so rosy and create a rather pessimistic mood for participants in the global energy market. According to the agency, this year's oil demand should not be expected to increase above 680 thousand barrels per day. This will be the minimum since 2009, excluding the decline caused by the coronavirus pandemic. Such a dire scenario will result from a sharp increase in oil production by all producing regions, led by Saudi Arabia, and will be complicated by weakening demand in China, India and Brazil, whose prospects for industrial recovery will be hampered by the threat of high US trade tariffs.

This is not the first time that the IEA and OPEC estimates of consumer trends for traditional energy sources differ dramatically. The difference in the calculations of both organizations lies in the fundamentally different points of view, methodology and ideology of the forecasting agencies. “The IEA mostly pursues the interests of fuel-consuming countries that import energy resources. It is in the agency’s interests to promote rhetoric that helps reduce prices in the long term and ensure greater availability of raw materials. Hence the forecast for a decrease in demand and consumption,” explains Alexander Shneiderman, Head of Customer Support and Sales at Alfa-Forex. “In turn, OPEC and OPEC+ are a community of countries that supply energy resources. It is in their interests to declare a growing demand for oil.”

In addition, the IEA provides more conservative forecasts, focusing on the expected demand on the transition to "green" energy, structural shifts in the economy and the risks of a slowdown in global trade, notes Freedom Finance Global analyst Vladimir Chernov. OPEC relies on internal data from member countries of producing alliances and usually forecasts more sustainable consumption growth based on the dynamics of emerging markets, the transport sector and Asian industry.

The truth, as it should be, is somewhere in the middle. According to Shneiderman, OPEC's forecast seems the most realistic. Relying on production as an exclusive factor in oil demand in today's trading conditions is becoming not entirely correct. "The future lies in the development of a new era of widespread use of artificial intelligence, the Internet, and robotization of production processes. This requires accelerating the creation of additional data processing centers (DPC), which already occupy fifth place in terms of electricity demand in the world. Considering that international corporations are actively investing in their DPCs by tens of percent per year, this sector is considered the most developing and growing consumer of energy," the expert says.

Due to the lifting of self-restrictions by OPEC+, there is indeed a lot of oil supply on the market: each supplier wants to maintain or increase its market share. This is where the market oversaturation and falling prices come from. However, this trend should be considered rather medium-term. The amount of hydrocarbons in the world is not increasing, and the volume of proven global reserves is currently at its lowest level in the last five years. Therefore, the current price of a barrel, which is around $66-68, does not fully reflect the value of energy resources produced and traded on commodity exchanges.

"Which of the forecasters - OPEC or the IEA - will ultimately be right will depend on the macroeconomic trajectory of 2025-2026," Chernov reasons. "If the global economy avoids recession and high consumption in Asia remains, the OPEC scenario will be closer to reality. With a slowdown in the US and China, increased energy conservation, and an increase in the share of renewable energy sources, the IEA scenario is more likely."

Meanwhile, the implementation of the Western agency's forecast will cause excess supply with weak demand, will lead to "downward" pressure on oil prices and will be an extremely unpleasant surprise for all exporters of "black gold", including Russia. This option will mean a reduction in foreign exchange earnings, a decrease in budget revenues and increased competition for sales markets, especially in Asia. Historically, in such conditions, OPEC+ countries resort to coordinated production cuts to balance the market and support prices. However, the alliance members have recently, on the contrary, begun to increase production volumes and agreed to continue expanding production capacity in September and until the end of 2025.

"Under such circumstances, there are no noticeable factors for returning to the previous policy of limiting production volumes. Unless, of course, oil prices fall to catastrophic levels," said economist and top manager in financial communications Andrey Loboda. The expert recalled that in early May, the Ministry of Finance released updated plans for revenues to the Russian budget from the oil and gas sector - 8.32 trillion rubles by the end of 2025. Compared to previous forecasts of 10.94 trillion rubles, the decline in this revenue item in annual terms is expected to be at the level of 24%. Against the backdrop of new Western sanctions, the decline in oil and gas revenues of the domestic treasury this year could reach 25-35%, adding 1-1.5 trillion rubles to the budget deficit, that is, about 1% of GDP, Andrey Loboda believes.

But we should not forget that the profits of our country's Middle Eastern partners in OPEC+ are also falling significantly. In particular, in April alone, Saudi Arabia's oil export revenues fell to their lowest level in almost four years. In this regard, there is some probability that Moscow and Riyadh will make joint efforts to strengthen fuel prices and balance supply and demand for raw materials on the market, at least within the framework of general voluntary contours, the expert concludes.