If demand for fossil resources — seen as major contributors to global warming — continues to increase rather than peaking at the end of this decade as projected, experts are raising concerns about a potential ‘oil price boom’ with severe economic repercussions.
According to the Paris Agreement, signed in December 2015, nations committed to limiting global warming to 1.5 degrees Celsius, aiming for net zero emissions from fossil fuels by 2050.
In line with this goal, it is expected that oil will reach its peak demand level at the end of this decade and then decline, paving the way for green energy sources to eventually dominate.
However, a growing rift between two major industry players—the International Energy Agency (IEA), representing the world’s foremost consumer nations, and the Organization of the Petroleum Exporting Countries (OPEC), the voice of the largest oil-producing countries—casts a shadow of uncertainty over when oil demand will ultimately peak.
The IEA advocates for a decline in fossil fuel demand post-2030, spurred by an expedited shift towards clean energy.
In contrast, OPEC, calling for trillions of investments in the oil sector, forecasts a continued increase in global oil demand beyond 2030.
According to OPEC’s latest market report, the current global demand of 104.5 million barrels per day (bpd) is expected to swell to 116 million bpd by 2045.
Attributed to the rising adoption of electric vehicles and a greater reliance on renewable energy for electricity generation, the IEA predicted in its March 14 monthly oil report that global crude oil demand will reach 103.18 million bpd by the end of 2024 before decreasing to 102 million bpd by 2030.
Meanwhile, experts issue stark warnings about the potential negative outcomes should crude oil demand fail to reach its expected peak by the end of the decade.
– ‘World cannot consume what it cannot produce’
“If oil demand does not peak by end-decade as IEA and others expect, then we will likely have an oil price boom that will end in an economically harmful recession,” Bob McNally, President of Washington-based energy consultancy Rapidan Energy, told Anadolu.
The OPEC+ alliance currently holds approximately 5 million bpd of spare capacity, a critical buffer that can be deployed to stabilize rising oil prices in the near term.
However, projections by Rapidan Energy suggest that this buffer will be entirely depleted by the end of the decade, leaving no room to manage escalating prices.
McNally emphasized the consequences of such a scenario, stating, “This means the oil price will need to rise to enforce the iron law of economics which states the world cannot consume what it cannot produce.’
McNally forecasts a boom cycle in oil prices that could mirror the dramatic increase experienced between 2003 and 2008, when prices nearly quintupled.
He cautioned that such cycles often culminate in significant economic distress. ‘Nearly all boom price cycles end in tears – that is to say, an economically harmful recession,’ McNally explained.
The rapid increase in oil prices, according to him, could significantly contribute to a downturn as both consumers and businesses struggle with the escalating costs of energy.
-Capital investments in oil market have decreased by approximately 50% since 2014
Julien Mathonniere, Oil Markets Economist at the US-based Energy Intelligence also addressed long-held market perceptions regarding peak fossil fuel demand, historically aligned with forecasts from the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).
Mathonniere pointed out differing views on the timing of peak oil demand, noting that according to Energy Intelligence’s projections, demand will reach a daily peak of 106 million barrels in 2029, signaling a peak sooner than anticipated by other major organizations.
‘The consensus among forecasters is that oil demand will start peaking by the end of this decade,’ Mathonniere stated.
However, he pointed out differences in peak timing predictions among key industry players. ‘OPEC has pushed back against this timeline and sees peak demand at 116 million barrels per day in 2045, while the IEA estimates that fossil fuel combustion will peak in 2028 at 105.7 million bpd.’
Contrasting these views, Mathonniere noted a shift in sentiment from other market participants.
‘Independent trading house Vitol said that they see peak demand slightly later, like, in the first half of the 2030s rather than the end of the 2020s,’ he explained. ‘This may look like a small, benign adjustment, but it shows you that peak demand timing remains a big bone of contention among forecasters.’
On the investment side, Mathonniere highlighted a robust recovery in 2023, with capital expenditure in oil climbing over 15%, including cost inflation adjustments.
‘We expect further gains because demand for oil and gas will continue to grow throughout this decade,” he added.
Highlighting that demand visibility would remain relatively strong over the next 10 years he said “the oil market will remain adequately supplied in the long term and that capital investment is currently sufficient.”
Pointing to the impact of increased efficiency and strategic investment decisions, Mathonniere said, efficiency boosts the impact of upstream investment, “so you basically do more with less despite a 50% drop since the 2014 capex peak of $900 billion.”
This is the result of capital discipline, tighter cost control, and efficiency gains, he elaborated. ‘We estimate that global upstream spending in 2023 exceeded $500 billion, pointing to $530 billion in 2024.’
The economist concluded with a cautionary note on the risks associated with continued increases in global oil consumption beyond 2030.
“There is always a risk of demand crunch if global oil consumption continues to rise beyond 2030, and the energy transition certainly adds a layer of complexity to assess upstream investment.”
