Why The IEA’s “Peak Oil” Forecast May Be Good for Energy Investors

This week, the International Energy Agency (IEA) issued a report predicting that “peak oil” the all time high point in oil demand, will come as soon as 2029. My first thought on reading the report was “Here we go again!”. Forgive my cynicism but, as somebody who has been involved in markets and trading for around forty years, I have heard this so many times and with so many predicted dates for when the peak will be achieved that have come and gone, that I am inevitably skeptical when I hear it again. What I have learned over time, though, is that each time this prediction resurfaces, oil actually moves higher.

That has certainly been the case this week…

Obviously, there are reasons other than the IEA report for that, but there is a logical treason why seemingly bearish predictions of peak oil, particularly when they come from usually reliable and well informed sources like the IEA, often have a bullish impact that can be sustained for some time. Such reports and predictions factor into the calculations of oil producers and transporters, as discussed in this piece about tanker operators, for example. That can cause a tightening of supply in anticipation of a drastic falloff in demand that, so far, has never really materialized.

One could argue that it must inevitably come at some point. I mean, aren’t EVs replacing cars with internal combustion engines? Aren’t wind turbines and great banks of solar panels visible everywhere you go? Isn’t oil under attack from environmentalists? Well, yes, but these things have been true for some time. That is why predictions of peak oil ring so true, and yet demand for oil keeps increasing.

The simple fact is that we live in an energy-intensive world. Every time somebody in the world is lifted out of poverty, the first things they buy are energy consumers. Some form of motorized transportation, maybe, a refrigerator or TV, or, more likely these days, a mobile phone. And, for those joining the consumer society, energy efficiency concerns are not a luxury they can afford. Then add in the fact that the AI revolution that we keep hearing about needs massive servers that consume enormous amounts of power to function and a whole host of other things that keep increasing energy consumption, and a collapse in demand for oil, or any energy source for that matter, looks a long way off.

And yet, when a “reliable” source like the IEA says that peak oil is coming, those involved in the oil supply chain adjust their demand models downwards. That has kept the global market tight for some time, apart from when there are major economic shocks to the system. That is a big part of the reason why, with the exception of at the height of the pandemic, crude has traded above $50 consistently for the last decade or so. The natural state of the market when everyone is convinced peak oil is coming is slightly undersupplied.

Of course, this doesn’t mean that we should all be rushing out and buying oil futures every morning, no matter what fundamental or technical analysis suggests on any given day. Oil will continue to fluctuate as it always has, with the quite strong bull runs and major corrections that make it such a tradeable commodity continuing, but, barring economic disaster, it will trade with a high floor. That means that long-term ownership of oil stocks will continue to pay off for investors, no matter how much some media sources tell you that the end is coming.