That’s happened against a backdrop of the U.S. ramping up shale production, countries tightly controlling how much oil is released, and the world transitioning to alternative energy sources. 

All these factors will culminate in a “staggering” excess of oil by 2030 that will far outstrip demand, Paris-based global energy watchdog International Energy Agency (IEA) warned in a report on Wednesday. 

Oil demand will gradually slow, hitting its peak by 2029 and plateauing after that. The IEA anticipates the oil supply hitting 114 million barrels a day by the end of the decade—roughly 8 million barrels a day higher than demand.      

“This would result in levels of spare capacity never seen before other than at the height of the COVID-19 lockdowns in 2020,” the IEA said. 

“Such a massive oil production buffer could usher in a lower oil price environment, posing tough challenges for producers in the US shale patch and the OPEC+ bloc.”

Contending with electrification

Although supply will outstrip demand in the next couple of years, oil demand will still be slightly higher in 2030 compared to current levels, thanks to a strong appetite from Asian markets like India and China. 

“By contrast, oil demand in advanced economies is expected to continue its decades-long decline,” the report said, adding that the only other exception to when demand was as low was in 1991 when major events like the Gulf War and the Soviet Union’s dissolution took place. Advanced economies will see oil demand decline by 3 million barrels a day from now to 2030.  

Even economies with relatively higher oil consumption will have to contend with the growing presence of electric vehicles and energy-efficiency methods that aim to cut or offset carbon emissions.

The IEA predicted last year that fossil fuels were at “the beginning of the end” as a shift in the energy industry was underway. The energy agency warned that demand forecasts in its latest report were subject to economic volatility, changes in the pace of EV adoption, and more. 

Pricing oil also varies a lot—earlier this week, both oil indexes, Brent crude and West Texas Intermediate, rose amid reports that oil production would climb later this year. Summer is expected to bring greater oil demand, although uncertainties, such as with interest rates, still figure into how the commodity is priced.   

However, overall, deceleration in demand will dominate what happens to the oil industry in the future.   

The gap in demand and supply will impact the stronghold of the OPEC+ alliance, which comprises the world’s major oil producers and its allies. The group, led by Saudi Arabia and the United Arab Emirates, has watched over oil output for years as a way to temper prices. Higher oil prices are more lucrative for economies, including Russia, that rely on oil exports to fill their coffers. 

Shrinking demand will create a “massive cushion” and shake up how OPEC+ approaches its strategy on oil production moving forward, the IEA said. That’ll also mean the group’s share of oil output will slip below 50% from this year onwards, paving the way for other non-OPEC+ members such as Brazil and Norway.

OPEC’s general secretary isn’t so sure that things are on the decline. The IEA’s forecast was “dangerous,” Haitham al-Ghais told the Financial Times Wednesday, and added that if investors stopped pumping money into the oil and gas industry, the resulting “energy chaos” would be “on a potentially unprecedented scale.”

Still, it looks like the sun is indeed setting for fossil fuels—sooner rather than later.