Oil demand will keep expanding over the next five years, and the United States will fulfill most of the world's growing appetite, the International Energy Agency said on Monday.
In its latest annual outlook, the IEA forecasted that strong economic growth around the world will continue to support strong oil consumption until at least 2023. Along with surging output from the U.S., rising production in Canada, Brazil and Norway will be able to meet higher demand through 2020, the energy policy adviser said.
Beyond that, however, the IEA warned that oil supply could become tight unless investment in new production rebounds from historic declines in recent years.
"Upstream investment shows little sign of recovering from its plunge in 2015-2016, which raises concerns about whether adequate supply will be available to offset natural field declines and meet robust demand growth after 2020," IEA Executive Director Fatih Birol wrote.
The industry's investments fell by 25 percent in both 2015 and 2016 and were flat last year, according to IEA. Those declines dovetailed with an historic collapse in oil prices that saw benchmark crude futures fall from more than $100 a barrel in 2014 to below $30 in 2016.
The market has rebounded since the 14-member OPEC cartel partnered with Russia and other producer nations to cut output last year.
Birol said oil market conditions have changed substantially since then, and the most notable development is the resurgence of U.S. production. The surge in American output is underpinned by several major shale fields, where drillers use advanced technology to squeeze oil and natural gas from rock formations.
The IEA projects the United States will pump 17 million barrels a day of crude oil, condensates and natural gas liquids, easily defending its title as the world's top producer of petroleum products. That's up from 13.2 million barrels a day in 2017.
By comparison, OPEC will increase its capacity by just 750,000 barrels a day through 2023, IEA says.
Throughout the world, IEA sees oil production capacity rising by 6.4 million barrels a day to reach 107 million barrels a day. The United States will account for 60 percent of that global increase, the agency stated.
Meanwhile, demand for oil will jump by 6.9 million barrels a day to 104.7 million barrels a day during the same period, the IEA forecast. About half of that growth is projected to come from China and India.
The agency maintained that there's no peak to oil demand in sight, but growth will start slowing down to about 1 million barrels a day by 2023.
Some of the headwinds include rising fuel efficiency in the United States, adoption of electric buses and natural-gas fueled trucks in China, and purchases of battery-powered passenger cars.
The biggest tailwind will come from the petrochemicals industry, which in the IEA's view will account for a quarter of oil demand growth over the five-year period.
Oil and gas drilling yields byproducts like ethane and naphtha, which are used to make plastics and chemicals. These will be in high demand as more countries around the world approach middle class status, the agency added.
The United States is positioned to take advantage of this trend, as booming oil and natural gas production creates a low-cost supply of petrochemical feedstocks.
Additionally, American drillers are poised to play a bigger role in the export market. The country has shipped as much as 2 million barrels a day in recent weeks, and the IEA said it will be prepared to ship as much as 5 million barrels a day by 2023, after building out new pipelines and export terminals.
During the next five years, the United States will surrender the title of the world's biggest oil importer to China and India, the agency estimated. In Asia, where some nations like China are refining more crude oil into gasoline at home, oil imports are expected to grow by 3.5 million barrels a day through 2023.
The Middle East will remain Asia's biggest supplier, but the region is also ramping up its domestic refinery activity, so there's opportunity for the United States to export more oil to the world's biggest demand center, according to the agency. Growing petrochemical production in China will also open a pathway for U.S. oil shipments.