My millennial daughter drives an old Jeep Compass and she isn’t exactly diligent about preventive maintenance. I like to tell her that she owns a hybrid vehicle, because it burns both gas and oil.

It’s another reminder that the internal combustion engine is on the wrong side of history. The International Energy Agency (IEA) announced on June 14 that the demand for oil is on track to slow significantly in the coming years.

The IEA attributes the forecast reduction in oil demand to the widespread adoption of electric vehicles (EVs) and other cleaner technologies, effectively bringing the growth of global oil consumption to a near standstill.

In a separate report, the U.S. Energy Information Administration (IEA) forecast on June 6 that Brent North Sea Crude, on which international oils are priced, will average about $79 per barrel in the second half of 2023 and $84/bbl in 2024.

A recent poll of analysts and economists predicted that West Texas Intermediate (WTI), the U.S. benchmark, will hover at slightly lower levels than Brent during these time frames. As of this writing, Brent hovers at $77/bbl and WTI at $72/bbl.

In other words, oil prices are projected to rise from now until the end of 2024, but not by much. Of course, much can happen over the next several months and events have a way of throwing projections into a cocked hat. But the trend from a macro perspective is clear.

The transition towards a clean energy economy is accelerating, and experts anticipate a peak in global oil demand before the end of this decade.

The assessment made this week by the IEA, which predicts a decline in global gasoline usage after 2026, is likely to dishearten the oil ministers at the Organization of the Petroleum Exporting Countries (OPEC) and other oil-producing nations.

OPEC and its partners, collectively known as OPEC+, implemented yet another round of production curbs this month, only to see these measures fail in stemming the fall in crude prices. Traders are more worried about demand destruction than they are about supply, as the global economy flirts with outright recession.

The IEA report also raises the long-standing debate on the concept of “peak oil,” where oil production reaches its maximum level and subsequently declines.

However, in this scenario, the plateauing of production would result from weakened demand rather than diminished petroleum supplies. This forecast arrives at a time when oil prices have been persistently low, failing to respond to recent output cuts orchestrated by Saudi Arabia and Russia (see chart).

Exacerbating the problem for the oil cartel is cheating by Russia, which has been exceeding its quota because it’s desperate for revenue to fuel its ruinous war in Ukraine. The on-again, off-again cooperation between the House of Saud and Russian President Vladimir Putin seems to be off-again, which is good news for inflation fighters in the West.

Optimism that inflation is cooling has been lifting the stock market in recent months. The main U.S. stock market indices gained for the week, although they took a breather Friday as follows:

• DJIA: -0.32%
• S&P 500: -0.37%
• NASDAQ: -0.68%
• Russell 2000: -0.73%

Oil prices got a jolt higher by new data from Baker Hughes published Friday, showing that the total number of active drilling rigs in the U.S. fell to 687 this week, 53 rigs below this time last year. A falling rig count presages tighter supply. Brent and WTI both ticked up more than 1% on Friday.

Two technical indicators remain bullish for the stock market. The CBOE Volatility Index (VIX) has fallen below 14. A reading below 20 generally denotes falling fear in the market. The New York Stock Exchange Advance/Decline (NYAD) line continues to hover above its 50- and 100-day moving averages, which denotes greater breadth.

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The IEA’s report is likely to amplify concerns among oil traders that China, historically the primary driver of global oil demand growth, may no longer fulfill this role. China stands as the largest market for EVs worldwide, and its economic recovery following the removal of its draconian COVID lockdowns has not been as robust as anticipated by some economists.

The crude oil consumption growth of the world’s second-largest economy is projected to decline, particularly in the latter years of the IEA’s forecast period, which extends until 2028.

The IEA predicts that by the end of 2028, more than 155 million EVs will have been sold globally, roughly 50% of which will be in China. As a result, three million barrels of oil per day that might have been consumed will instead remain untapped.

The inflection point…

To be sure, crude oil remains the world’s most valuable commodity and it will play a central role in energy generation for years to come. However, global energy investment has reached an inflection point between renewable and non-renewable sources. It’s telling that in 2020, the Dow Jones Industrial Average booted Exxon Mobil (NYSE: XOM) from its 30-stock index.

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John Persinos is the editorial director of Investing Daily.

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