Why Forecasters Can’t Agree On When Oil Demand Will Peak

Oil demand is set to plateau rather than drop off a cliff after it peaks, the International Energy Agency (IEA) predicted this week, citing “policy settings and market trends.” But here’s the thing about policy settings and market trends: they change.

That oil demand is set to peak before 2030 has been repeated ad nauseam by various forecasters, including, notably, Chinese energy majors Sinopec and CNPC. Indeed, OPEC is the only forecaster of demand that does not see it peaking anytime soon. Of course, OPEC is interested in its predictions panning out—but so is the IEA, a vocal proponent of the shift to electrification in transport and moving from hydrocarbon-fueled baseload generation to weather-dependent wind and solar, as are many governments of large oil consumers.

When the IEA cited those “policy settings and market trends” in its latest Oil Market Report and its Oil 2025 report, which came out together this week, it was that shift to EVs and the move to wind and solar that it meant as drivers of falling oil demand. But there are some challenges facing both assumptions.

A recent Shell-commissioned survey found that while existing EV owners tend to feel more confident about their vehicles, many prospective buyers remain hesitant—citing cost as a major barrier. “While current EV drivers are feeling more confident, the relatively high cost of owning an electric vehicle, combined with broader economic pressures, are making it a difficult decision for new consumers,” Shell’s VP for mobility and convenience, David Bunch, said, as quoted by Bloomberg this week.

China remains an exception, thanks to extensive subsidies and a highly competitive market that has driven down prices. However, even in China, this model may be reaching its limits. “It’s very extreme, tough competition,” an executive vice president of BYD told Bloomberg. “No, it’s not sustainable,” Stella Li added, referring to the current situation in China’s electric car sector. The most likely prospect is consolidation. And that may put a stop to the continuous decline in prices.

Despite this, many oil demand forecasts—including the IEA’s—still rely on projections of steady EV growth. But recent industry decisions suggest a more complex picture. GM announced it would invest $4 billion in expanding internal combustion engine vehicle production. Volvo Cars, which reported strong EV-driven sales last year, saw a 12% drop in overall sales this May, in part due to underperformance in its EV segment. These developments reflect growing pains in the transition—not necessarily a reversal, but perhaps a recalibration of expectations.

If one of the largest U.S. automakers is tempering its EV ambitions, it raises the question: how many others might adjust course, especially if EV profitability continues to lag behind that of ICE vehicles?

Then there is the issue of “policy settings.” In this respect, Europe is perhaps the best example of trying to go against nature and suffering adverse consequences. Here, we have the European Union’s and the UK’s leadership bent on having an energy transition whether anyone wants it or not, up to and including, in the UK’s case, decimating local oil and gas production in favor of imports of both, plus electricity. In the EU, the leadership is discussing a ban on any oil products that may have been produced from Russian crude oil—when the EU is a major importer of oil derivatives from Asia, which in turn features the two biggest buyers of Russian crude, China and India.

The IEA and most other forecasters are quite certain that this sort of energy policy would ultimately lead to lower oil demand. That’s despite the fact that the UK’s extremely pro-transition government conceded the country still needs North Sea oil and gas so they limited their efforts to ban it to new exploration only. It’s also despite the fact that Austria has joined Slovakia and Hungary in opposing a total ban on Russian gas imports—after the EU booked a record in LNG imports from Russia last year.

However, on the ground, as it were, reality keeps shattering these visions, and oil demand remains strong. Naturally, economic trends and events such as inflation and tariffs affect demand negatively when they go up. This has always been the case and always will be, when it comes to oil. But the fact that prices surged immediately after Israel launched missiles at Iran last Friday shows quite clearly that the world is still as hooked on crude as it has been for a century.