Save for later Print Download Share LinkedIn Twitter How tight could the oil market get in the coming years as spare capacity fears mount? A preliminary Energy Intelligence analysis through 2024 shows the world should have enough crude and liquids supply to meet rising demand and still have 2.7 million barrels per day of spare capacity. But this would require everything to go right at a time when balances remain extremely vulnerable to unpredictable world events. Put simply, thin spare capacity means there is little room for error. The Ukraine war, the energy transition, the ongoing pandemic, the current natural gas crisis, and macroeconomic forces could all have large, unpredictable impacts. The biggest wild card will be how demand growth pans out in the coming years. High prices and recession pressures can seriously dent demand growth later this year and in 2023. The Energy Intelligence base case scenario sees demand growth of 1.9 million b/d this year, 1.3 million b/d in 2023 and a trickle more in 2024. Demand erosion fears are grappling with spare capacity and supply concerns for control of today's oil market. The recent slide in oil product prices suggests the market is more focused on demand fears, as consumers respond to high fuel prices. Refining margins show a red flag. They have fallen fast from record levels, with Singapore even showing a loss over the past week compared to a profit of $21 per barrel a month ago. US margins are down from $36 to $12/bbl over that period, and European margins have dropped from $31 to $8/bbl. This reflects lower consumer demand in the face of high prices, as well as recessionary effects in some regions. On the face of it, our forecast for average annual demand growth of 1.5 million b/d for the 2022-24 period looks restrained. For 2023 alone, the International Energy Agency (IEA) predicts demand growth of 2.1 million b/d, while Opec sees 2.7 million b/d. But limited refining capacity is holding back product availability and keeping product prices high at a time when consumers are grappling with soaring inflation. Continued high oil prices are expected to accelerate efficiencies and increase use of alternatives. Jet fuel remains the big-ticket item that is expected to hike oil demand in the coming years. Fuel switching from high gas prices can be another big support. Gasoline is sensitive to high prices. Diesel remains tight. Until recently, the market has been exceedingly focused on supply disruptions from Russia, ignoring signals of deteriorating demand. New gas price spikes in Europe are set to cripple portions of the euro zone economy and slow growth there to a trickle. Global GDP momentum has continued to decline. The International Monetary Fund has cut its 2022 growth forecast by another 0.4 percentage points to 3.2%. Average annual oil demand growth for the 2010-22 period was 1 million b/d.Non-Opec capacity increases will take the lead in meeting projected demand growth through 2024. The US, Canada, Guyana and Brazil are the key countries adding capacity. If demand comes in higher than expected, replenishing inventories will be slower, and more help from Opec-plus might be needed. That essentially means that Saudi Arabia and the United Arab Emirates — the only members with meaningful spare capacity — would need to pump more. Saudi Arabia is slated to add 675,000 b/d in new capacity in 2024. Russia remains the biggest wild card on the supply side, followed by Iran and Libya. In our forecast, Russian output drops by 1.3 million b/d in 2023 and another 200,000 b/d in 2024. The IEA says investments in new crude output capacity are not high enough to meet future demand, even with oil prices stubbornly around $100/bbl. But oil services giants like Schlumberger see an upstream boom that is not done yet, led by North America. Schlumberger CEO Olivier Le Peuch sees a "broad-based ... multiyear upcycle" around the world, with “spending visibly higher across all customer types." Our forecast sees the US posting supply growth of 1.1 million b/d in 2022, 1.2 million b/d in 2023 and 900,000 b/d in 2024.