In recent months, traders and analysts have been largely pessimistic about oil, anticipating declining demand and lower prices. However, a new perspective from OPEC and Exxon suggests that the opposite might be true.
OPEC has long warned that insufficient investment in new oil sources could lead to a significant supply crunch and drive prices higher. Exxon has now echoed these concerns in its latest Global Outlook report.
Exxon predicts that oil and gas will remain crucial to the global energy mix through 2050. It expects oil demand to stay above 100 million barrels per day (bpd) after peaking, and gas demand to remain strong due to a projected 80% increase in electricity use by 2050.
Exxon’s forecast also challenges the impact of electric vehicles (EVs) on oil demand. The company claims that even if every new car sold globally in 2035 were electric, oil demand in 2050 would still be 85 million bpd—unchanged from 2010 levels. This view contrasts sharply with other forecasts, which predict that EVs will drastically reduce oil demand. Despite significant growth in EV sales, particularly in China, overall oil demand has continued to rise.
Critics might argue that Exxon’s forecast serves its business interests, as it relies on continued oil sales for profit. Similarly, OPEC’s warnings about underinvestment might be seen as a strategy to drive up prices.
However, this argument is not entirely convincing. A shortage of oil and gas would benefit Exxon and OPEC through higher prices, as seen in 2022. Yet, such shortages also bring political and social instability, which could be detrimental to large corporations like Exxon.
Exxon forecasts a natural decline in global oil production of about 15% annually over the next 25 years. In contrast, the International Energy Agency (IEA) estimates a decline rate of 8% annually. Exxon attributes the higher decline rate to the shift toward shale and other unconventional oil sources, which deplete faster than traditional sources. Without new investments, Exxon warns that global oil supplies could drop by over 15 million bpd in the first year alone, potentially plunging from 100 million bpd to less than 30 million bpd by 2030—70 million barrels short of daily demand.
Such a severe supply squeeze could lead to energy shortages, skyrocketing oil prices, and high unemployment rates, according to Exxon’s report. Prices might surge by as much as 400%, far exceeding the increases seen during the 1970s oil embargo.
However, this extreme scenario is unlikely. Before such a drastic shortage occurs, there will likely be calls for increased production, even from those currently advocating for the cessation of new oil and gas investments. The IEA’s Fatih Birol, for example, called for more investment in oil and gas just months after the IEA’s 2021 net-zero roadmap suggested no new investments were needed.
The IEA later highlighted the need for increased investments to address rising demand and shrinking spare capacity. This suggests that Exxon’s outlook may be more accurate than the current bearish forecasts focused on short-term trends.
Ultimately, investment in oil and gas is expected to continue despite activist pressures and government threats. Energy security remains a priority over ideological concerns.