Everyone in the energy business spends some time thinking about future oil prices. Up. Down. Flat. Regardless of the direction, price changes impact oilfield spending and activity. Given the long-term nature of oilfield projects, there’s little that can be done about short-term fluctuations, except being ready to shut down activities if oil prices crash. Therefore, planning should focus on longer-term trends.
Recently, the International Energy Agency (IEA) forecasted low oil demand growth for this year. It predicts the world will consume just 700,000 barrels per day (bpd) more in 2025 than in 2024. Moreover, the IEA projects demand growth of only 720,000 bpd in 2026. The IEA expects global oil consumption to peak in 2029, with China’s demand topping out in 2027. The messahe: get ready for a radically different world in less than five years.
The U.S. Energy Information Administration is slightly more optimistic, forecasting an 800,000 bpd demand increase this year and 1.1 million bpd more next year. The most bullish forecaster, unsurprisingly, is OPEC, projecting demand growth of 1.3 million bpd in both 2025 and 2026. So how do we reconcile these widely differing views?
All forecasts rest on assumptions — in this case, the impact of switching from fossil fuels to green energy. Governments in developed countries are pushing to electrify industrial processes, power grids, and heating and cooling systems using renewables like wind, solar, and batteries.
The IEA believes green energy will rapidly erode oil demand. OPEC disagrees, expecting transportation demand to rise despite electric vehicle adoption. Current EV market trends suggest the IEA’s optimism may be premature. OPEC also assumes developing economies will continue relying on fossil fuels to drive growth and raise living standards.
Depending on whether one relies on the IEA’s or OPEC’s outlook leads to very different futures. When global oil supply and demand data don’t align, the gap is known as “missing barrels.” The IEA accounts for them in its short-term balance, but they often result in historical demand revisions. Few track the accuracy of past forecasts — at their peril.
In May, the IEA revised past global demand estimates, adding 260,000 bpd to 2022, 330,000 bpd to 2023, and 350,000 bpd to 2024. These seemingly minor changes highlight the difficulty of evaluating forecast accuracy. To make sound decisions about the future, scrutinize the assumptions behind every estimate.
