Dr. Ken Rietz
The concept of peak oil has been around since the 1950s. It says that since crude oil is a finite quantity, there must come a time when its extraction rate hits a maximum, with an inevitable decline from then. No one argues any differently, but there has been considerable discussion recently about when it is going to happen. That is what this commentary is going to investigate. But first, here is the chart of the front-month NYMEX WTI crude oil futures.
Figure 1: Front-month futures for NYMEX WTI crude oil
As you can see, the price of WTI has been chopping its way slowly down since mid-June until now. The price of Brent crude oil is essentially the same. This decline is the market’s way of saying that peak oil has not yet happened, because a reduction in supply will cause the price to increase.
The US Energy Information Agency (EIA) has staked out a position that is earlier than most people can endorse. They predict that US oil production will peak in 2027. Of course, this is only peak oil for the US, but since the US is the global leading oil producer, it should have some relevance. The argument that the EIA uses is the decline in production of shale oil.
Oil companies have their own ideas about when peak oil will occur. BP estimates that peak oil won’t occur until 2030. They also expect the non-OPEC countries to slow production in 2026. ExxonMobil also puts peak oil at 2030 but expects the price to remain nearly level until 2050. Eni is planning on reducing its own oil production to 2025 levels and shifting to a focus on natural gas and then renewable energies. They have been planning on this since 2020. On the other hand, OPEC sees no peak oil before 2050. It is hard to see how two collections of intelligent people can look at the same data and come up with such different estimates.
One explanation for the wildly divergent opinions is that each organization is boosting itself, interpreting data in such a way as to maximize its own position. An impetus for this position is yesterday’s revision of peak oil by the International Energy Agency (IEA, not to be confused with the EIA mentioned above), arguably the top global energy agency. The IEA held to the standard Peak Oil at about 2030, but very recently changed its definition of peak oil demand to include more realistic assumptions (such as the demand for energy due to AI), and now says that demand will rise until at least 2050, echoing the OPEC value.
Giacomo Prandelli, writing The Merchant’s News at themerchantnews@substack.com, makes an excellent point on this subject. He notes that the different sides (near peak oil versus distant peak oil) can’t even agree on how much oil was used in 2024. The Western organizations are almost 1.4 million barrels per day lower than OPEC estimates. That is a huge amount of oil. And that is for the amount of oil actually burned, and not an approximation including China’s growth estimates. If the world can’t agree on how much oil was consumed that recently, it is hard to expect that they will agree on projections for 2030 or 2050. Prandelli’s conclusion is obvious, but hard to accept: at least one of the estimates is fundamentally broken.
At ADIPEC held earlier this month in Abu Dhabi, the tension could not be maintained. The CEO of TotalEnergy, a company committed to achieving zero net emissions by 2050, said that as we reduce our dependence on gas and oil, we will need to increase the amount of gas and oil we use. BP’s statements were even scarier. There is an argument that the gas and oil will never stop being pumped up, since plastics require them as feedstock. But that takes us into another whole realm, for a future commentary.
We now have the difficult task of how to trade crude oil. The supply of crude oil is likely not to keep up with the growth expected, especially if India gears up to become a middle-class country, and wells look to slow down production. So, expect the price of oil to be going up for the next few years. If you want to invest in oil companies, pick ones that have been preparing for the future.