Peak Oil Demand, Really? Some Lessons From The Debate Over Peak Supply
Some recent headlines and quotes from the press: “Peak Oil is Suddenly Upon Us” (Bloomberg 12/1/20); “Even Exxon Mobil is Capitulating to Peak Oil Demand” (Bloomberg 12/1/20); “End Game for Oil? OPEC Prepares for an Age of Dwindling Demand,” (Reuters 7/28/20); “World has already passed peak oil, BP figures reveal” (CarbonTracker 9/15/20); “COVID-19 has brought peak oil demand forward; oil use may never again exceed 2019 levels” (DNV-GL 2020);
The fact that many who believed in peak oil supply now wholeheartedly support the imminence of peak oil demand doesn’t mean peak oil demand predictions should be discarded as being as fallacious as peak oil supply arguments were, but it does show that there are many credulous people out there who hop on the fashionable topic of the day. Many of those who wrote about peak oil supply knew little or nothing about the subject but liked the message and found supporting views on the internet (which is now considered research by all too many people). The same is true of peak oil demand.
I have taken particular pleasure in those who talked about my work despite being unfamiliar with anything but my occasional price predictions and only in the post-2000 period, apparently due to internet limitations. (My book includes a list of my bad price predictions collated by one of my critics, followed by a list of my research publications and discussion of how valid they were—or weren’t.)
One lesson from peak oil supply: professions of certainty about something as uncertain as future oil demand should be taken as a sign of naivete or bias, not expertise. I have often joked that one can’t be an arrogant oil price forecaster without a healthy dose of self-delusion (and there were a few who fit that model), but unfortunately, too many consumers of ‘analysis’ (real or faux) prefer confident certainty over complex explanations.
Additionally, drawing lessons about long-term trends from unusual events tends to end badly. This was certainly the case with peak oil supply, where the price spike induced by the troubles in the Venezuelan oil industry and loss of Iraqi oil supply from the second Gulf War, among other disruptions, was interpreted as proof of geological scarcity, with a front page quote from one peak oiler in 2004, “Holy Mother! The good ol’ days arrived.” (Wall St Journal 9/21/2004; oil production subsequently grew by 15 mb/d).
Other cases: in 1979, the Iranian Revolution created an oil crisis, but many observers treated it as evidence of resource scarcity, not a supply disruption (the CIA famously so) and predicted ever higher prices. The 1998 oil price collapse, due to a recession in Southeast Asia and a price war between Saudi Arabia and Venezuela, was taken by some as evidence of likely persistent low oil prices, the Economist famously producing a cover “Drowning in Oil.”
Worthy of note: oil demand has peaked before, as the figure shows, during periods of high oil prices, recession, or both. Peak oil supply advocates regularly argued that any peak in supply, even for a few months, represented the permanent peak, never explaining why any given fluctuation different from all preceding ones. Peak oil websites exulted in every drop in Saudi production as heralding confirmation of the 2005 book “Twilight in the Desert” which argued Saudi production was on the verge of collapse. Numerous posts on theoildrum.com, a peak oil website, insisted, for example “Saudi Arabian oil production is now in decline…Declines are rather unlikely to be arrested, and may well accelerate.” (That was in 2007.)
Similarly, some now point to the latest BP Outlook, showing three scenarios in which oil consumption ceases to grow as supporting of the validity of the peak oil demand predictions, but this is reminiscent of peak oil advocates like Joe Romm who slammed by 2009 criticism of peak oil arguments, citing various experts, for example, “Steep falls in oil production means the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years, Merrill Lynch said in a research report.”
Amusingly, the Bloomberg story described BP’s Energy Outlook as “highly regarded,” presumably because they like its contents. Most people in the business would tell you that while BP’s Outlook is valuable, long-term oil forecasts in general have a terrible record. (See my 1992 paper “The Failure of Long-term Oil Market Forecasting” for one of many on the subject.)
And again, I don’t disagree with Bloomberg’s statement “The list of energy analysts who now foresee a peak in oil demand keeps growing.” But the same could be true of peak oil supply in the 2000s or of the belief that $100 a barrel was the floor price of oil during the same period. The consensus view often reflects both a desire to not deviate from the apparent consensus, regardless of how many times that consensus failed miserably, but also, the media coverage of the latest fashion in punditry.
The reality is that public behavior post-pandemic is unknown and highly uncertain and the many arguments for an imminent peak are based on assumptions that are questionable, Peak oil demand might occur, and might occur in the next few years, but the probability of that happening, in my opinion, appears low. (See forthcoming research on www.eprinc.org.) More likely, low oil prices and post-pandemic economic stimuli will mean a recovery in oil demand and a return to growth.