The situation for oil markets today could hardly be more different from what it was in 2020. Two years ago, lockdowns imposed in response to the Covid-19 pandemic caused a huge oversupply of oil, leading prices to collapse to an average of USD 44/barrel. Today, global supply is struggling to keep pace with demand, with many producers bumping up against capacity constraints and Russia’s invasion of Ukraine sharply accentuating market tightness. Prices have soared to an average of USD 105/barrel so far in 2022.

Global oil use is subject to sharply conflicting pressures. Some sectors, notably aviation, are still recovering from the shock of the pandemic. Others, such as the chemical sector, have remained robust throughout. Road transport, which has traditionally been the heartland of oil consumption, is undergoing structural changes, especially for personal mobility; nearly one-in-ten passenger cars sold worldwide in 2021 was an electric vehicle. And now high prices – and their economic impacts – are contributing further to near-term uncertainty. 

Key findings

  • The oil market today is grappling with huge near-term and long-term uncertainties. Fears of recession loom large over the immediate prospects for demand, although China could boost oil use as it emerges from renewed lockdowns. Sanctions on Russia and dwindling spare capacity cast a shadow over the adequacy of supply. High prices are generating a historic windfall for the oil and gas industry, accompanied by hesitation on how this can best be invested given the likelihood of structural shifts in oil use in the decades to come.
  • Our scenarios provide different perspectives on the strength of these shifts and their implications. In the Stated Policies Scenario (STEPS), global oil demand rebounds and surpasses 2019 levels by 2023, despite high prices; demand peaks in the mid-2030s at 103 million barrels per day (mb/d). In the Announced Pledges Scenario (APS), stronger policy action brings forward the peak in oil demand to the mid-2020s. In the Net Zero Emissions by 2050 (NZE) Scenario, faster global action to cut emissions means oil demand never returns to its 2019 level and falls to 75 mb/d by 2030.
  • Around 10% of cars sold in 2021 were electric. This rises to 25% in the STEPS and to 60% in the NZE Scenario by 2030. Electric and fuel cell heavy trucks struggle to gain market share in the STEPS, but they comprise 35% of trucks sold in 2030 in the NZE Scenario. Road transport oil demand increases by 1.5 mb/d between 2021 and 2030 in the STEPS, but falls by 13 mb/d in the NZE Scenario.
  • Aviation and shipping consumed 10 mb/d of oil in 2021, which is 20% less than before the Covid-19 pandemic. In the STEPS, economic growth drives up trade and travel, and demand grows by 4 mb/d between 2021 and 2030. In the APS, action is taken to increase the use of alternative fuels and cut emissions to achieve the climate goals of governments and targets set by industry organisations, and demand increases by 3 mb/d to 2030. In the NZE Scenario, behaviour changes and increases in low‑emissions liquid fuels mean oil demand barely increases to 2030.
  • The chemical sector was the only sector in which oil use increased in 2020, and it is set to account for a rising share of oil use in each scenario. Around 70% of oil used as a petrochemical feedstock is currently used to produce plastics. A number of countries are announcing policies to ban or reduce single-use plastics, improve recycling rates and promote alternative feedstocks. Global average recycling rates for plastics increase from the current level of 17% to 27% in 2050 in the STEPS, 50% in the APS, and 54% in the NZE Scenario.
  • In the STEPS, rising demand and declining output from existing sources of production mean that new conventional upstream projects are required to ensure that supply and demand stay in balance. Around USD 470 billion annual upstream investment is spent on average to 2030, which is 50% more than has been invested in recent years. In the APS, demand is lower, but there is still a need for new conventional projects, and USD 380 billion is invested annually on average to 2030. In the NZE Scenario, declining fossil fuel demand can be met without the need for the development of new oil fields, but with continued investment in existing assets, and this requires USD 300 billion annual average upstream investment to 2030.
  • The impact of the Covid-19 pandemic and the low level of investment in recent years mean there are few new resources under development and few discovered resources available to be developed. New oil resources discovered in 2021 were at their lowest level since the 1930s. The implications of this vary by scenario. In the STEPS, the largest increases in production to 2030 come from US tight oil, Middle East members of OPEC, Guyana and Brazil.
  • High oil prices and energy security concerns are encouraging some countries to revisit the case for issuing exploration licences for new domestic oil projects. Such licences are unlikely to provide any relief in the short term: in the past it has taken 20 years on average to move from a new exploration licence to the start of production. Projects with shorter lead times and quick payback periods – such as tight oil and projects to extend production from existing fields – are better candidates for making good any short-term shortfalls in supply. They play an important role in all our scenarios.
  • Global refining capacity fell in 2021 for the first time in more than 30 years. As demand rebounded in 2022 and oil product exports from Russia and China have fallen, refining margins surged to record highs. In the STEPS, rising demand for diesel and kerosene means markets are likely to remain very tight for a number of years. In the APS, strong policy measures to curb demand significantly reduce this tightness. The APS and the NZE Scenario see major changes in the composition of product demand, requiring refiners to adapt refinery configurations and business models, and to invest more heavily in emissions reductions, hydrogen and biofuels.
  • Disruption to food supply chains and high fertiliser prices mean liquid biofuel costs have soared. A growing focus on ensuring sustainability meanwhile has led to increasing attention being paid to advanced liquid biofuels that do not directly compete with food and feed crops, and that avoid adverse sustainability impacts. Liquid biofuels grow from 2.2 million barrels of oil equivalent per day (mboe/d) in 2021 to 3.4 mboe/d in the STEPS, 5.5 mboe/d in the APS and 5.7 mboe/d in the NZE Scenario in 2030.
  • Low-emissions hydrogen-based liquid fuels offer an alternative to oil, but they currently have high costs of production and suffer from limited enabling infrastructure. The development and deployment of new projects over the next decade will be essential to lower costs and improve performance so that these fuels can play a significant role in the future.