Slowing demand growth and surging supply put global oil markets on course for a major surplus this decade, according to a report released by the International Energy Agency (IEA) on Wednesday.

Based on current policies and market trends, strong demand from fast-growing economies in Asia, as well as from the aviation and petrochemicals sectors, is set to drive oil use higher in the coming years, the report finds.

The increase will likely be offset by factors such as rising electric car sales, fuel efficiency improvements in conventional vehicles, declining use of oil for electricity generation in the Middle East, and structural economic shifts, according to the latest edition of the IEA's annual medium-term market report.

As a result, the report forecasts that global oil demand, including biofuels, averaged just over 102 million barrels per day in 2023, and will level off near 106 million barrels per day towards the end of this decade.

In parallel, a surge in global oil production capacity is expected to outstrip demand growth between now and 2030. Total supply capacity is forecast to rise to nearly 114 million barrels a day by 2030, a staggering 8 million barrels per day above projected global demand, the report finds.

This would result in levels of spare capacity never seen before, other than at the height of the COVID-19 lockdowns in 2020. Spare capacity at such levels could have significant consequences for oil markets - including for producer economies in OPEC and beyond, as well as for the U.S. shale oil industry, according to the report.

"This year, we expect demand to rise by around 1 million barrels per day," said IEA Executive Director Fatih Birol. "This report's projections, based on the latest data, show a major supply surplus emerging this decade, suggesting that oil companies may want to make sure their business strategies and plans are prepared for the changes taking place."