Upstream’s mounting challenge to deliver future oil supply

Oil demand isn’t going away any time soon. That’s the overwhelming verdict of the many CEOs of international (IOC) and national oil companies (NOC) speaking at this week’s 9th OPEC International Seminar in Vienna. It’s a view we share. But the current market volatility does not augur well for the sustained upstream investment required to deliver the supply needed into the 2030s.

I asked our Macro Oils team experts, Ann-Louise Hittle and Alan Gelder, how our two days in Vienna had influenced their own view of the oil market.

Why is the industry’s mood on oil demand so positive?

The slow pace of the shift to low-carbon energy means that oil is very much in the energy fold after seeming to be on the way out in the wake of the Paris Agreement. However, it’s less about growing – although some of that is still to come – and more about demand resilience. Speakers consistently cited energy security and affordability as a crucial aspect of a just energy transition.

The view from our Macro Oils Service is that global liquids demand grows from 104 million b/d this year to a peak of over 108 million b/d in 2032, as set out in our base case. In our Delayed Energy Transition scenario (DETS), that demand is over 6 million b/d higher five years later. The shape is important, too, as various speakers pointed out. Rather than a swift decline, peak demand is followed by a lengthy plateau, holding above 100 million b/d for years to come.

What does resilient demand mean for supply?

It has massive implications. We forecast the industry needs to deliver 23 million b/d of new liquids production onstream in 2035, a supply gap created by demand growth but mostly declines in production from existing fields. The gap widens to 33 million b/d in the DETS, roughly a third of current supply. Filling the gap, as ever, is about higher recovery factors from existing fields (technology), as yet undeveloped existing discoveries and yet-to-find resource (exploration success) – together the upstream industry’s forever hamster wheel.

The challenge, though, is tougher than the industry has ever faced because the market is bigger. And it comes at a time when there are fewer players with the appetite to invest in upstream and access to finance is still limited.

Is the industry being innovative in response to the challenge?

Yes, this was a clear message at the seminar. It’s too early to expect AI to make a big difference in boosting supply. One large NOC said it had improved its exploration success rate using AI. Elsewhere, the industry is experimenting with AI in the subsurface, speeding up seismic analysis, for example. Tight oil operators are focusing AI on improving recovery rates and capital efficiency.

What about governments?

Two examples surfaced in Vienna of resource-holding governments improving fiscal terms designed to boost upstream investment. The Nigerian Minister of State for Petroleum highlighted fiscal changes designed to support the government’s bold plans to double production by 2030. India’s Minister for Energy similarly outlined major regulatory and fiscal changes to kick-start exploration in vast tracks of newly opened and promising offshore acreage. The government is confident that the current live bid round will attract IOCs.

Will current oil market volatility dampen upstream investment?

Yes. Our forecast at the start of the year was that oil and gas spend would rise by 3% in 2025, registering the sixth year of an upward streak. Instead, we now expect a 3% decline this year as companies pull some discretionary expenditure.

Do we expect price weakness to be short-lived?

The fundamentals point to a difficult year. OPEC+ is accelerating the return of large volumes into the market just as US President Donald Trump’s tariffs are undermining global economic growth and oil demand. Even with the extreme geopolitical tension in the Middle East, Brent is expected to be lower in H2 2025 and 2026 than the US$80/bbl-plus averages of the last three years. We forecast Brent will average about US$60/bbl in 2026, with a nadir of US$56/bbl in the seasonally weak demand period of Q1 2026.

We can see a potential turning point in the fundamentals in 2027. Weak prices this year and next will reduce non-OPEC supply growth from 1.2 million b/d in 2025 to just 0.3 million b/d in 2027. That opens the door for OPEC+ to increase its market share and balance the market.

What should the upstream industry’s approach be to investment?

Look beyond the current volatility and invest through the downturn, as we heard from one IOC CEO in Vienna, neatly echoing our own view. An active upstream industry, in conjunction with OPEC, is critical to meet the challenge of satisfying persistent oil demand and offsetting production decline.