Although oil bulls have been provided with ample ammunition, they have chosen, for some time now, to keep their gunpowder dry. Seemingly, no amount of geopolitical risk or bright economic prospects is sufficient for them to demonstrate a sustained upside commitment. Wednesday’s cut in US interest rates had a tangible impact on equity investors, as the major US stock indices continued their relentless march skyward, yet oil refused to follow. While the Bank of England, and overnight the Bank of Japan, kept rates unchanged due to inflationary concerns, Norway’s central bank followed in the footsteps of the Federal Reserve, lowering borrowing costs to support its economy. One possible explanation for oil’s reluctance is that the recovery, particularly in the US, remains uneven. The corporate sector is benefiting from ongoing deregulation, whereas consumers are beginning to feel the strain of import tariffs, with both the labour and housing markets showing signs of weakness.

Just as oil investors resist being swept up in the equity euphoria, they are equally unwilling to place bullish bets on the back of persistent Ukrainian drone attacks against Russian oil infrastructure. In the latest incident, Russia’s western neighbour launched drone strikes on an oil processing and petrochemical complex, as well as on a refinery in the Bashkortostan and Volgograd regions. Yet the two major international crude oil benchmarks drifted lower, ending the day around 50 cents per barrel in the red. For two months now, it has been glaringly evident that, under OPEC+’s new strategy to reclaim lost supply market share, combined with grim economic prospects, any attempt to push prices higher during periodic geopolitical flare-ups is seen as an irresistible selling opportunity.

One More Push Above $100/bbl?

It is intriguing to observe the market’s reluctance to rally meaningfully despite frequent reports of flare-ups in geopolitical tensions and the still historically subdued OECD oil inventories recorded in the previous quarter of 2025. A plausible explanation, of course, is close at hand. Supply is expected to remain abundant: global and OECD oil stockpiles are widely anticipated to swell towards the end of the year and even more so in 2026. As a result, the impact of perceived or actual supply disruptions has the lifespan of a mayfly, and re-testing the 2025 peak of $82.63/bbl (basis Brent), achieved at the beginning of the year, does not appear realistic or feasible at the moment.

The medium-term outlook, however, appears strikingly different. Expectations surrounding the achievement of net-zero carbon emissions have undergone a tangible shift. This change is reflected in rising capital expenditure on oil exploration and production at the expense of investment in renewable energy, as well as upward revisions to global oil demand forecasts. The world now seems likely to rely on fossil fuels, including oil, longer than anticipated before Russia’s nefarious incursion into Ukraine.

Turning to the demand side of the oil equation, the diverging views between forecasting agencies, most notably OPEC and the IEA, are frequently highlighted. Their latest monthly reports put next year’s estimates almost 2 mbpd apart: OPEC expects consumption of 106.53 mbpd, compared with the IEA’s projection of 104.58 mbpd. Nonetheless, relatively sanguine views on demand are conspicuous in the upgrades made between April and September: 250,000 bpd by the IEA and 200,000 bpd by OPEC.

The gap remains in the medium term as well (although it is narrowing), rooted in differing perspectives on the global economy and in the near-impossible task of predicting the precise effects of climate change and artificial intelligence over the next 20–30 years. OPEC projected in its 2024 World Oil Outlook that global oil demand would reach 120.1 mbpd by 2050 under its reference case scenario, and revised this figure upward to 122.9 mbpd in its latest issue. The IEA, in stark contrast, estimated under its Stated Policies Scenario that global oil demand would plunge to 93.1 mbpd over the same period. Reconciling the two estimates will be easier when the IEA releases its latest World Energy Outlook next month. By reintroducing the so-called Current Policies Scenario, the Agency, as pointed out by Energy Intelligence, will reportedly predict a global consumption of 114 mbpd by 2050, up from 103 mbpd in 2024. Peak oil is being re-evaluated.

Demand forecasts are seemingly improving, at least in relative terms, prompting oil drillers, both international majors and national companies, to step up efforts to meet this growth. They face, however, a formidable challenge: new fields may not be able to match the predicted growth in consumption. As my colleague stressed in yesterday’s note, the IEA has recently warned of underinvestment in oil production. The observed rate of decline for conventional oil stands at 5.6%, with the natural decline rate even steeper. The Agency estimates that if all capital investment in oil production were halted immediately, global output would plummet by 8%. If all investment in unconventional sources such as shale oil were to cease, production would collapse by more than 35% within a year and by a further 15% the year after.

The implications of reassessing global oil demand, combined with the pressing challenge of offsetting the decline in existing fields, are possibly threefold. First, it could lead to a tight oil balance towards 2030 and beyond, inevitably pushing prices higher, creating inflationary pressure, and forcing central banks to raise interest rates. Second, as natural decline rates are far steeper in unconventional sources such as tight oil than in Middle Eastern or Russian conventional fields, the battle for energy security could trigger heightened geopolitical tensions. Third, in the ongoing struggle for global economic dominance, the fossil fuel–friendly stance of the current US administration could have a profound and adverse impact on the country’s economic and political clout, given that its greatest rival, China, is investing considerably more effort into renewable resources, technologies that are becoming cheaper and more efficient than fossil fuels.

The world’s reliance on oil will persist for years, perhaps even decades. If, however, supply fails to keep pace with the predicted growth in demand, another push above $100/bbl could provide a powerful boost to renewable energy, forcing yet another recalibration of the pace of transition from fossil fuels to wind and solar power.

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