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The International Energy Agency (IEA) was created a half century ago in response to geopolitical disruption in Middle East. As recent events show, the region remains critical to world oil markets. And oil remains critical for global economies. It is obvious to any observer that an escalation in the Israel/Iran conflict could upend oil and gas markets and send prices soaring, triggering massive damage to the global economy — in which case, all current oil market bets are off. However, if the conflict resolves without escalation, oil markets will largely return to business as usual.
The IEA’s latest attempt to predict the future, Oil 2025 – Analysis and Forecast to 2030, reinforces the agency’s consistent message that oil demand will peak by 2029, with China, the world’s second-biggest oil market, peaking in 2027. Electric vehicles (EVs), for example, are seen as a global success story, although heavily skewed toward centrally planned China.
One important problem with the credibility of IEA’s peak demand message is that history is regularly re-written and historical oil demand data is revised upward. For the future, the current headwinds for EVs in many markets, especially in the US, suggest that the displacement of gasoline and diesel might not be as great as predicted. This possibility and others point to the crucial question of the reality of IEA’s assumptions about future oil demand.
‘Missing Barrels’
Oil analysts use the phrase “missing barrels” to describe when data for supply (including stockpiles) doesn’t match up with demand. The IEA regularly shows in its short-term balance the large volumes of “missing barrels.” At some point they turn up, usually in the form of heavily revised historical oil demand data. This happened in May when the IEA went back in time and added 260,000 barrels per day to global demand for 2022, 330,000 b/d for 2023 and 350,000 b/d for 2024. That totals to some 350 million “missing barrels,” i.e., the under-estimated demand. The main reason why historical demand is raised is that in many countries, mainly in the non-OECD world, data collection is very slow and often incomplete. This means that it takes time to catch up with what actually happened.
It should be recognized that the IEA makes great efforts to work with all countries to improve data gathering so that we have an earlier, more complete picture of global demand: I’m not aware that anybody else works as hard at this as the agency. Despite their best efforts, the IEA’s forecasts appear biased toward anticipating lower future oil demand than will almost certainly be the case. That, of course, has ramifications for potential shortfalls in investments needed to secure adequate (and thus low-cost) supply.
Vision vs. Reality
One potential source of future “missing barrels” could be in the Middle East, where the IEA projects a decline of 1.1 million b/d of crude use in power plants by 2030. In its forecast, the agency sees Saudi Arabia’s internal oil demand in 2030 down by a net 600,000 b/d due to an assumed elimination of 1 million b/d in the burning of oil in power stations, to be replaced by natural gas and renewables. That assumption is based on “policy settings” in the Saudi Vision 2030 project. In Iraq, the IEA also sees a 100,000 b/d cut in oil use in power between 2024 and 2030, based on delivery of megaprojects to swap in gas for oil in power plants. In reality, these ambitions are not currently on course to be met, although this could change.
If the pattern of recent years, when historical demand is revised upward and is maintained, then the “missing barrels” that will regularly appear in the IEA’s monthly Oil Market Report will almost certainly be added to demand in the coming few years, making it more likely that policy targets will be missed.
More generally, if we try to anticipate where demand might be higher than the IEA currently expects, a good place to look might be the slowing of uptake of EVs. This could mean that gasoline and diesel demand will be higher than currently expected, and this will partly offset the loss of 5 million b/d of demand that the IEA expects to be replaced by EVs by 2030.
Most upward revisions to historical demand data are found in developing countries, particularly in Africa and non-OECD Asia, Africa uses only 9% of the oil used in OECD countries on a per capita basis and even fast-growing India in some cases uses only 12%. The IEA does acknowledge those regions as the biggest sources of oil demand growth to 2030 because their rising populations will demand more energy as they (we should all hope) become wealthier. Generally, it is in developing countries where we see data catch-up.
Peak Demand Pushback
Darren Woods, CEO of Exxon Mobil, the world’s biggest nonstate oil company, recently commented on the IEA’s latest forecast of peak oil demand in 2029, observing that there’s “no chance of that happening. I think what you see happening in demand, even as you continue to grow wind, as you grow solar, you’re gonna continue to see demand for oil and gas grow through 2050.”
Critics might say that Woods is “talking his book,” but markets and consumers will be far better served if companies like Exxon invest to meet expectations of demand rather than the inverse. Too many “missing barrels” in the real world turning up as higher demand could have enormous, and unpleasant, consequences. Meanwhile, the IEA’s latest outlook remains wedded to what “policy settings” hope might happen.
Neil Atkinson is an independent energy analyst, a former head of the IEA’s Oil Industry and Markets Division and a visiting fellow at the National Center for Energy Analytics. The views expressed in this article are those of the author.