The International Energy Agency (IEA) has predicted that oil demand will plateau rather than decline sharply after it peaks, citing “policy settings and market trends.” However, these trends are subject to change, and the IEA’s forecast may not take into account the complexities of the energy market. Many forecasters, including Chinese energy majors Sinopec and CNPC, have predicted that oil demand will peak before 2030, but OPEC is the only forecaster that does not see a peak in demand anytime soon.
The IEA’s forecast is based on the assumption that the shift to electric vehicles (EVs) and renewable energy sources such as wind and solar will drive down oil demand. However, there are challenges facing this assumption. A recent survey found that many prospective EV buyers are hesitant due to high costs, and even in China, where EVs are highly subsidized, the market may be reaching its limits. Industry decisions, such as GM’s investment in internal combustion engine vehicle production, suggest a more complex picture.
The issue of “policy settings” is also a factor, with Europe being a prime example of trying to force an energy transition without considering the consequences. The European Union’s ban on Russian crude oil products may not lead to lower oil demand, and the UK’s pro-transition government has conceded that the country still needs North Sea oil and gas. The fact that oil prices surged after Israel launched missiles at Iran shows that the world is still heavily dependent on crude oil.
Despite the IEA’s forecast, oil demand remains strong, and economic trends and events such as inflation and tariffs affect demand negatively. The market’s reaction to the conflict between Israel and Iran shows that prices can rise quickly if there is a perceived threat to supply. OPEC’s spare capacity may not be enough to meet demand if there is a disruption in supply, and the market is not as oversupplied as assumed.
In conclusion, the IEA’s forecast of a plateau in oil demand may not be accurate, and the energy market is more complex than assumed. The shift to EVs and renewable energy sources is not as straightforward as predicted, and policy settings can have unintended consequences. The world’s dependence on crude oil is still strong, and the market’s reaction to geopolitical events shows that prices can rise quickly if there is a perceived threat to supply.