The future of global oil demand is under intense debate, as the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) recently released contrasting outlooks. Investors in the oil and gas sector should pay close attention to these differing views, as they have significant implications for market dynamics, pricing, investment strategies, and regulatory considerations.

The IEA’s Perspective: An Imminent Peak

Demand

According to a recent report,¹ the IEA has forecasted that global oil demand will peak by 2029, driven by advances in renewable energy, electric vehicles, and energy efficiency initiatives. The graphic below from the IEA report shows demand growth slowing in the next six years:²

World Oil Demand Forecasted to Plateau This Decade

Supply

The IEA also forecasts a future oil glut based on anticipated supply increases from OPEC members. The report states, “A ramping up of world oil production capacity, led by the United States and other producers in the Americas, is expected to outstrip demand growth over the 2023-2030 forecast period, inflating the world’s spare capacity cushion to unprecedented levels, barring the Covid-19 period.”³

OPEC+ Spare Crude Production Capacity and Implied Total Oil Stock Build, 2016-2030

Notes: Projections based on the current OPEC+ supply agreement. OPEC+ countries are crude oil only. Assumes Iran and Russia remain under sanctions. Implied oil stock builds include total oil.

This projection of future demand and supply for oil suggests that the world will face a staggering oil supply glut by the end of the decade, potentially destabilizing oil prices and challenging the profitability of oil-dependent economies and companies.

Key drivers of this projected peak of the supply glut include:

• Technological advancements: Rapid improvements in clean energy technologies, including the effects of “surging EV sales,”⁴ are reducing the reliance on oil for transportation
• Policy shifts: Governments worldwide are implementing stringent emissions regulations and promoting clean energy to combat climate change
• Consumer behavior: Increasing environmental awareness is pushing consumers towards greener alternatives, further eroding oil demand

OPEC’s View: Demand Remains Robust

In stark contrast, OPEC disputes the IEA’s forecast, asserting that peak oil demand is not imminent. OPEC’s Secretary-General has labeled the IEA’s predictions as “dangerous” and “misleading,” emphasizing that oil will continue to play a crucial role in the global energy mix for the foreseeable future.⁵

OPEC’s counterarguments include:

• Economic growth: Continued economic expansion, particularly in developing regions, will drive increased energy consumption and demand for oil
• Energy security: Oil remains a reliable and versatile energy source, essential for ensuring energy security in many parts of the world⁶
• Technological limitations: While renewables are growing, current technology does not yet fully support a complete transition away from fossil fuels, particularly in heavy industries and aviation

OPEC’s secretary general, Haitham Al Ghais, asserts that the IEA forecast is “simply a continuation of the IEA’s anti-oil narrative. Given the real trends we see today, we do not see peak oil demand by the end of the decade.”⁷

Implications for Market Participants

The divergence in these forecasts presents both risks and opportunities for stakeholders in the oil and gas sector. Further compounding this divergence in future expectations is the upcoming U.S. election. President Joe Biden is expected to continue promoting climate change initiatives, to reduce the supply of oil and natural gas as compared with former-President Donald Trump’s goal of returning to “Drill-Baby-Drill,” and to increase future supplies.

WTI Strip Prices Increase

Spot prices and futures prices for the West Texas Intermediate (WTI) contract increased approximately $6.25 per barrel in the near term and increased approximately $2.25 over the longer term.

WTI Strip Prices - One Month Change

As shown, the oil price curve remains in a state of “backwardation,” reflecting the market’s expectation of lower future spot prices.

Oil Price Outlook

The price distribution below shows the crude oil spot price on July 10, 2024, as well as the predicted crude oil prices based on options and futures markets. Light blue lines are within one standard deviation (σ) of the mean, and dark blue lines are within two standard deviations.

WTI Crude Oil $/BBL

Based on these current prices, the markets indicate there is a 68% chance oil prices will range from $70.00 and $90.00 per barrel in mid-October 2024. Likewise, there is roughly a 95% chance that prices will be between $56.00 and $112.00. By mid-December 2024, the one-standard deviation (1σ) price range is $66.00 to $92.00 per barrel, and the two-standard deviation (2σ) range is $49.00 to $121.50 per barrel.

Key Takeaways

Remember that option prices and models reflect expected probabilities, not certain outcomes, but that does not make them any less useful. Throughout most of 2023 and 2024, crude oil spot prices have primarily fluctuated within the range of $70 to $90 per barrel. During that time, we observed general increases in futures price volatilities as prices neared the upper bound of that range, as evidenced by the futures price ranges observed. For mid-December 2024 pricing as of July 10, 2024, the 1σ range had a spread of $26.00 per barrel, and the 2σ range has a spread of $72.50 per barrel. For comparison, in 2022 we observed 1σ and 2σ price ranges in excess of $65.00 and $150.00, respectively.

1. “Oil 2024: Analysis and forecast to 2030,” International Energy Agency, June 12, 2024.
2. “Oil 2024: Analysis and forecast to 2030,” page 11, International Energy Agency, June 12, 2024.
3. “Oil 2024: Analysis and forecast to 2030,” page 7, International Energy Agency, June 12, 2024.
4. “Oil 2024: Analysis and forecast to 2030,” page 99, International Energy Agency, June 12, 2024.
5. “OPEC Slams IEA for 'Dangerous' Forecast of Peak Oil Demand by 2030,” Tsvetana Paraskova, Oilprice.com, June 13, 2024.
6. "OPEC Sec Gen: Peak oil demand not on the horizon," EA Forum, OPEC, June 13, 2024.
7. "OPEC Slams IEA for 'Dangerous' Forecast of Peak Oil Demand by 2030," Tsvetana Paraskova, Oilprice.com, June 13, 2024.