War-Driven Oil Shortages Highlight the Fragility of Global Energy Supplies
The International Energy Agency predicted that by 2028, the world's oil companies would produce more oil than people wanted to buy, leading to low prices and reduced investment in new wells and refineries. However, no one anticipated a war in the Middle East that would block oil shipments through the Strait of Hormuz, causing fuel shortages and price hikes.
Oil demand forecasts are inherently uncertain, with different projections making vastly different predictions about future energy use. For example, some forecasts expect oil demand to peak by 2030, while others predict it will continue to rise until at least 2050.
The popularity of electric vehicles is a case in point. In Norway, nearly all new car sales are electric, but fuel use on the roads has only decreased by about 10%. In China, over half of new cars sold are electric, but the country still uses more gasoline than it did before 2020.
The uncertainty surrounding oil demand forecasts means that investments in new production capacity may not provide immediate relief. It can take up to 20 years for a new oil field to come online, and investors must make educated guesses about future energy use when deciding where to allocate their funds.