Oil

Oil continues to play a major role in the global economy

Oil continues to play a critical role in the global energy system over the first half of the outlook, with the world consuming between 85-100Mb/d of oil in 2035 in the two scenarios.

Oil in Current Trajectory

In Current Trajectory, oil consumption continues to grow over the rest of this decade, albeit at a declining rate, before edging back to around its current level by 2035. Demand is supported by increasing use in India and other emerging Asian countries as their economies continue to grow rapidly, partially offset by continuing declines in developed markets. In marked contrast to the past decade during which China accounted for around half of all global oil demand growth, China’s oil consumption is slightly lower by 2035 in Current Trajectory.

Beyond 2035, oil demand in Current Trajectory declines, falling to a little below 85Mb/d by 2050. This fall is concentrated in developed economies and China, with oil consumption in 2050 in most other regions of the world broadly unchanged from their 2035 levels.

Oil in Below 2°

In Below 2° the falls in oil demand occur sooner and with greater intensity, with oil demand falling to a little above 85Mb/d by 2035 and to a little below 35Mb/d by 2050. The declines in oil consumption are broadly based across geographies, led in the first half of the outlook by the developed world and China, but with demand falls in other emerging economies accelerating beyond 2035.

Sources of oil demand

The two most important uses of oil shaping the outlook for oil demand are the diminishing role of oil in road transport as vehicles become more efficient and are increasingly electrified, counteracted by the more persistent use of oil as a feedstock in the petrochemicals sector led by the continuing demand for plastics. These two uses are considered in more detail in transport and feedstocks respectively.

Outside of these two sources of demand, oil consumption in Current Trajectory is boosted by rising consumption of jet fuel as increasing global economic activity and growing prosperity in developing economies spur greater demand for air travel. Oil use in aviation also increases over the rest of this decade in Below 2° but subsequently declines as an increasing share of aviation demand is met by sustainable aviation fuel (SAF) derived from biofuels and hydrogen.

The use of oil in marine transport increases slightly over the first half of the outlook in Current Trajectory before gradually falling as the use of bunker fuel is replaced by alternative marine fuels, led by LNG, liquid biofuels, and biomethane.

More generally, the remaining use of oil as an energy source, largely in industry and buildings, gradually declines over the outlook in both scenarios as these sectors increasingly electrify and improve their energy efficiency.

Oil use in road transport declines as increasing vehicle efficiency and electrification offsets growing transport demand in emerging economies

Opposing forces

The use of oil in road transportation is the largest source of oil demand, accounting for around 40% of oil consumption in 2023. The future use of oil in road transport reflects the outcome of two opposing forces: increasing prosperity and improving living standards in emerging economies leading to a growing demand for road transportation; but the impact of this increased road transportation on oil use being offset by road vehicles becoming more efficient and by an increasing switch to electric vehicles, primarily in developed economies and China.

Oil in road transport

In Current Trajectory, the expanding demand from road transportation would, other things equal, cause oil use to increase by around 12Mb/d by 2035. But the impact of this increase in underlying demand is broadly offset by a combination of improving efficiency of internal combustion engine (ICE) vehicles and an increasing electrification of road transport.

Beyond 2035 in Current Trajectory, underlying transport demand continues to increase, but the accelerating adoption of electric vehicles, together with continuing efficiency improvements of the ICE vehicle fleet, more than offset the implication of this demand increase for oil use. The use of oil in road transport in Current Trajectory falls to a little over 25Mb/d by 2050, compared with close to 40Mb/d in 2023 and 2035.

The same opposing trends are apparent in Below 2°, but the downwards impact from the increasing electrification of road vehicles is greater, especially in the second half of the outlook. Oil use in road transport falls to around 35Mb/d by 2035 and to less than 10Mb/d by 2050.

Key markets

The increasing penetration of electric vehicles over the outlook is driven initially by a combination of tightening vehicle CO₂ emission standards and direct policy support, later reinforced by economic factors as the price of electric vehicles falls relative to ICE vehicles and approaches price parity in some vehicle segments and regions.

In Current Trajectory, the number of electric passenger cars and trucks increases from around 40 million in 2023 to 480 million in 2035 and 1.4 billion in 2050. The corresponding numbers for Below 2° are 560 million and 2.1 billion.

The increasing importance of electric vehicles in road transport is dominated by three key markets: China, Europe, and the US. In Current Trajectory, China’s current leadership in the adoption of electric vehicles continues over the next 15 years or so, with electricity fuelling around 45% of vehicle kilometres in China in 2035, compared with around 35% across developed European economies and less than 20% in the US.

Further ahead, however, the increasing restrictions on the sale of new internal combustion engine cars in both the EU and other parts of developed Europe in the second half of the 2030s mean that by 2050, more than 90% of vehicle kilometres are powered by electricity in Europe, compared with 80% in China and 60% in the US.

The use of oil as a petrochemicals feedstock becomes an increasingly important component of oil demand

Growing importance of oil as a feedstock

The use of oil as a feedstock has almost doubled since 2000, increasing from less than 8Mb/d to over 14Mb/d by 2023, accounting for around a quarter of the growth in total oil demand over this period. This growth was underpinned by the increasing production of plastics, which more than doubled over the same period, and which accounts for around 70% of the growth in the use of oil in petrochemicals since 2000.

In Current Trajectory, the use of oil by the petrochemicals sector increases further over the first half of the outlook, reaching around 20Mb/d by 2035. This increase is led by China and the Middle East, reflecting the growing concentration of petrochemical production capacity in these regions.

Beyond 2035, the growth of oil as a petrochemicals feedstock slows, as global economic growth moderates and the responsiveness of the demand for plastic to economic growth declines. Even so, the use of oil as a feedstock rises to around 23Mb/d by 2050, with its share in overall oil demand increasing from around 15% in 2023 to 20% in 2035 and to close to 30% in 2050.

Greater sustainability

The greater regulations and incentives to reduce, reuse and recycle plastic goods in Below 2° means the increased use of oil in petrochemicals is more limited. Oil used as a feedstock increases to a little below 20Mb/d by 2035 but falls back in the second half of the outlook, such that by 2050 it is back close to current levels. But the more pronounced falls in other components of oil demand (see Oil) means that by 2050 petrochemical demand accounts for around 45% of total oil demand.

Economic growth and plastics demand

The use of oil as a feedstock is highly dependent on the growth in the demand for plastic goods. Over the past 30 years or so, the demand for plastics has become less responsive to increases in economic activity, as the global pattern of economic demand has shifted away from goods towards services, and as society has used plastic goods in more sustainable ways.

The future relationship between economic growth and the use of plastics has an important bearing on overall oil demand.

In Current Trajectory, holding all other aspects of the scenario constant, the difference between assuming that the average relationship between economic growth and plastic demands seen over the past 30 years holds into the future, as opposed to assuming that it continues to decline at a similar rate to the past, can lead to a difference in feedstock demand of as much as 10Mb/d of oil equivalent by 2050, the large majority of which would be from oil.

The changing level and composition of oil demand puts increasing pressure on refineries

Key trends shaping refining

The outlook for refining is shaped by three key trends:

Current Trajectory

In Current Trajectory, overall demand for refined product is broadly unchanged out to 2035. Gasoline and diesel demand decline as their use in road transport wanes, but this is offset by the increasing demand for petrochemical feedstocks and jet fuel.

The US and Europe experience the largest falls in gasoline and diesel, whereas the increases in demand for petrochemical feedstocks are concentrated in China and the Middle East.

These trends gather pace beyond 2035 in Current Trajectory. Falls in gasoline and diesel demand accelerate, only partially offset by muted growth in jet fuel and petrochemical feedstocks. The global demand for refined products falls to a little over 70Mb/d by 2050, compared with close to 90Mb/d in 2023 and 2035. As in the first part of the outlook, the lion’s share of this reduced demand occurs in developed economies, leading to continuing challenges to the utilisation and viability of refineries in those economies.

Below 2°

The falls in gasoline and diesel demand are more pronounced in Below 2°, with each falling by around 5Mb/d by 2035 and by a further 15Mb/d by 2050. The use of oil in petrochemicals continues to grow over the first half of the outlook but then falls back as the world limits its use of plastic goods. By 2050, petrochemical feedstock demand is close to its current level (see Oil).

The falls in product demand are more broadly based across the globe than in Current Trajectory, with developed economies continuing to see the largest reductions, but with material declines also in China, other parts of emerging Asia, and the Middle East.

The speed and nature of the adjustment in the refinery sector to the increasing economic pressures in both scenarios depends on the extent to which domestic refineries are perceived as providing wider benefits to the local economy, such as a source of employment or enhancing energy security.

Non-refined alternatives

In addition to the changing levels and composition of product demand, the pressure on refineries is compounded by the growing use of non-refined alternatives, particularly natural gas liquids (NGLs) and biofuels.

For example, in Current Trajectory, the small increase in the demand for total liquid fuels out to 2035 is more than met by increasing supplies of NGLs and biofuels, such that the demand for refined products falls.

The pattern of global oil supplies changes as US tight oil peaks and oil demand declines

Forces shaping oil production

The outlook for global oil production is shaped by two key forces. First, by changes in the pattern of non-OPEC+ supplies, as US tight oil – which has been the single largest source of global supply growth over the past 10 years or so – plateaus and subsequently declines. And second, by increasing competition for market share by OPEC+ producers as global oil demand falls.

In Current Trajectory, global oil production is little changed over the first half of the outlook. In contrast to the rapid growth seen over the past 10-15 years, US onshore production is broadly flat over this period at around 15Mb/d. Brazil and Guyana record the largest increases, with their production reaching around 5Mb/d and 2Mb/d respectively by 2035.

The combination of broadly flat oil demand out to 2035, together with continuing gains in overall non-OPEC+ supplies, means there is little scope for OPEC+ to increase their output over the first half of the outlook.

OPEC+ compete for market share

Falling oil demand in the second half of the outlook in Current Trajectory leads OPEC+ to seek to increase its share of overall production, in order to maintain output levels, while also balancing the implications of that greater competition for oil prices.

The greater cost competitiveness of OPEC+ oil producers means all the fall in global demand out to 2050 in Current Trajectory is borne by non-OPEC+ producers, led by the US, Brazil and Guyana. US onshore production falls to around 10Mb/d by 2050. The market share of OPEC+ increases from close to 50% in 2023 and 2035 to around 60% by 2050.

Non-OPEC+ production falls most

The earlier and deeper falls in oil demand in Below 2° cause OPEC+ to compete more actively to maintain its production levels and expand its market share. As a result, the falls in oil demand out to 2035 are almost entirely concentrated in non-OPEC+ production, led by marked falls in onshore US output. Brazil and Guyana register some increase in production, but the more competitive environment means the scale of the expansions are more limited than in Current Trajectory.

The accelerating falls in oil demand post-2035 in Below 2° lead to more broadly-based falls in both non-OPEC+ and OPEC+ production. Even so, the greater cost competitiveness of OPEC+ producers means non-OPEC+ production accounts for over half of the total fall in oil supplies out to 2050, with the market share of OPEC+ producers increasing to 55% by 2035 and to over 60% by 2050.