Demand for oil faces a dramatic slowdown as China’s electric car revolution pushes combustion-engine vehicles off the road, the International Energy Agency (IEA) has said.
World oil demand will climb by just 700,000 barrels a day in 2025, for a total of just under 103m barrels a day.
But even as demand slows, the big producers are hell-bent on ramping up supply.
The Organisation of the Petroleum Exporting Countries (Opec), a cartel of oil-producing nations, is on course to pump out an extra 2.1m barrels a day this year, the IEA said, taking their total daily output to 105m.
Kieran Tompkins, at Capital Economics, said: “We are at a really interesting turning point in the market just now.
“Peak oil demand is on the horizon.”
Opec has been voluntarily curtailing the oil supply for several years to try to prop up the price.
But Saudi Arabia is now leading a push to loosen the spigot, hoping to regain market share lost to the US and other non-Opec producers.
The Saudis bumped up their output by 700,000 barrels a day in June, the IEA said, reaching 9.8m barrels a day. The ostensible reason was to get ahead of any potential disruption from Israel’s attack on Iran.
Suhail al-Mazrouei, the United Arab Emirates’ energy minister, said this week that the market was still “thirsty” for Opec’s oil – as shown by the fact that unsold stock had not built up last month as producers began selling more.
Opec’s own forecast is that demand will increase by 1.3m barrels a day this year.
But analysts at Macquarie Group backed the IEA, saying growth will be barely half that.
They said the slowing demand and increasing output would create “cartoonishly large” surpluses this year.
The Brent crude oil price climbed back above $69 a barrel on Friday, having shed 2pc the day before, as traders focused on near-term supply tightness over the likely oversupply later in the year.
Opec’s hopes of finding buyers for its higher output are running up against a steady decline in demand from China, the world’s second-largest economy, where electric vehicles (EVs) are quickly pushing combustion-engine cars off the road.
EVs accounted for half of Chinese car sales last year, and the IEA has forecast that this will rise to about 60pc this year.
One in 10 cars on Chinese roads are now electric, and the 11m sold in China last year exceeded the entire global sales volume just two years earlier.
The Chinese truck fleet is also expected to shift quickly from diesel to liquefied natural gas.
Macquarie forecasted China’s oil demand to increase by just 54,000 barrels a day this year – the slowest growth in almost a decade, except for a couple of outliers during the pandemic and in 2022.
