Global oil markets are gradually recalibrating after three turbulent years in which they were upended first by the Covid-19 pandemic and then by Russia's invasion of Ukraine. Benchmark crude oil prices are back below pre-war levels and refined product cracks have now come off all-time highs after rising supplies coincided with a marked slowdown in oil demand growth in advanced economies. Moreover, an unprecedented reshuffling of global trade flows and two consecutive emergency stock releases by IEA member countries in 2022 allowed industry inventories to rebuild, easing market tensions.

While the market could significantly tighten in the coming months as OPEC+ production cuts temper the upswing in global oil supplies, the outlook improves over our 2022-28 forecast period. Russia’s invasion of Ukraine sparked a surge in oil prices and brought security of supply concerns to the fore, helping accelerate deployment of clean energy technologies. At the same time, upstream investments in 2023 are expected to reach to their highest levels since 2015.

Our projections assume major oil producers maintain their plans to build up capacity even as demand growth slows. A resulting spare capacity cushion of at least 3.8 mb/d, concentrated in the Middle East, should ensure that world oil markets are adequately supplied throughout our forecast period.

As always, there are a number of risks to our forecasts that could affect market balances over the medium term. Uncertain global economic conditions, the direction of OPEC+ decisions and Beijing’s refining industry policy will play a crucial role in the balancing of crude oil and product markets. 

Based on existing policy settings, growth in world oil demand is set to slow markedly during the 2022-28 forecast period as the energy transition advances. While a peak in oil demand is on the horizon, continued increases in petrochemical feedstock and air travel means that overall consumption continues to grow throughout the forecast. We estimate that global oil demand reaches 105.7 mb/d in 2028, up 5.9 mb/d compared with 2022 levels.

Crucially, however, demand for oil from combustible fossil fuels – which excludes biofuels, petrochemical feedstocks and other non-energy uses - is on course to peak at 81.6 mb/d in 2028, the final year of our forecast. Growth is set to reverse after 2023 for gasoline and after 2026 for transport fuels overall. These trends are the result of a pivot towards lower-emission sources triggered by the global energy crisis, as well as policy emphasis on energy efficiency improvements and the rapid growth in electric vehicle (EV) sales.

China was the last major economy to lift its stringent Covid-19 restrictions at the end of 2022, leading to a post-pandemic oil demand rebound in the first half of 2023. But demand growth in China slows markedly from 2024 onwards, and global oil demand growth shrivels from 2.4 mb/d in 2023 to just 400 kb/d by 2028. Nevertheless, burgeoning petrochemical demand and strong consumption growth in emerging economies will more than offset a contraction in advanced economies. For total oil demand to decline sooner, in line with the IEA’s Net Zero Emissions by 2050 Scenario (NZE Scenario), additional policy measures and behavioural changes would be required.

The petrochemical sector will remain the key driver of global oil demand growth, with liquified petroleum gas (LPG), ethane and naphtha accounting for more than 50% of the rise between 2022 and 2028 and nearly 90% of the increase compared with pre-pandemic levels. The aviation sector will expand strongly as airline travel returns to normal following the reopening of borders. At the start of 2023, jet fuel demand was still lagging 2019 levels by more than 1 mb/d, or 13%. It quickly accelerates and contributes the highest growth across all products over the forecast period, increasing by a substantial 2 mb/d. However, efficiency improvements and behavioural changes will slow the pace of growth so consumption will only surpass 2019 levels by 2027. 

Global upstream oil and gas investment is on track to increase by an estimated 11% in 2023 to USD 528 billion, compared with USD 474 billion in 2022. While the impact of higher spending will be partly offset by cost inflation, this level of investment, if sustained, would be adequate to meet forecast demand in the period covered by the report.

Based on the current pipeline of projects underway and US light tight oil (LTO) growth expectations, we see 5.9 mb/d of net additional production capacity brought online by 2028. Despite easing from 1.9 mb/d on average over 2022-23 to just 300 kb/d by 2028, new capacity building still moves in line with projected demand growth over the forecast period.

Oil producing countries outside the OPEC+ alliance (non-OPEC+) dominate medium-term capacity expansion plans, with a 5.1 mb/d supply boost led by the United States, Brazil and Guyana. Saudi Arabia, the United Arab Emirates (UAE) and Iraq lead the capacity building within OPEC+, while African and Asian members struggle with continuing declines, and Russian production falls due to sanctions. This makes for a net capacity gain of 800 kb/d from the 23 members in OPEC+ overall.

The relatively strong increases from non‑OPEC+ producers, together with the projected slowdown in demand growth, tempers the requirement for OPEC+ crude. As a result, estimated effective spare capacity of at least 3.8 mb/d is maintained throughout the forecast period. 

A third wave of refinery capacity closures, conversions to biofuel plants and project delays since the pandemic reduced the overhang in global refinery capacity. This, combined with a sharp drop in Chinese oil product exports and an upheaval of Russian trade flows, resulted in record profits for the industry last year. While net refinery capacity additions of 4.4 mb/d expected by 2028 outpace demand growth for refined products, contrasting trends among products means that a repeat of the 2022 tightness in middle distillates cannot be ruled out.

Refiners may need to shift their product yields towards middle distillates and petrochemical feedstocks to reflect changing demand patterns. Demand for petroleum-based premium road transport fuels, such as gasoline and diesel, is 1 mb/d below 2019 levels at the end of the forecast period. At the same time, robust petrochemical activity and slower growth in natural gas liquids (NGLs) supply raises demand for refinery-supplied LPG and naphtha. Chinese production policy will be pivotal for global markets. Close alignment with petrochemical plant feedstock needs could leave middle distillate markets very tight by 2028.

While East of Suez continues to propel growth in capacity additions and refinery runs, the Atlantic Basin could see throughputs decline despite substantial new plants starting up in Nigeria, Mexico and Brazil.

However, most of the increase in global crude and condensate production will come from the Atlantic Basin. The Western Hemisphere, and especially the Americas, will be the largest incremental supplier of oil to global markets, with exports up by 4.1 mb/d by 2028. This shift in trade flows comes in addition to most of the 2.5 mb/d of Russian crude oil backed out of Europe and G7 countries due to embargoes flowing eastward. The absence of additional Middle East exports in 2028 versus 2022 and surging Asian import requirements result in steadily rising flows from the Atlantic Basin to East of Suez.

The prevailing trend for both crude oil and products is increased supplies from the Americas and the Middle East to Asia. Refinery additions and dwindling crude production reduces Africa’s crude export potential by around 15% over the forecast period but curbs its net product import requirements by 10%.