Commentary: Peak oil demand has arrived

The ongoing conflict between the US and Iran, which has led to the effective closure of the Strait of Hormuz, is accelerating the arrival of peak global oil demand, according to NYU professor Carolyn Kissane. This disruption, described as the largest in modern history, is forcing a significant shift in energy markets. The International Energy Agency (IEA) now forecasts that global oil demand in 2026 will be approximately 1.3 million barrels per day lower than pre-war projections. While weaker economic conditions and higher prices contribute to this decline, a substantial portion is attributed to countries actively adapting to reduced oil availability. Faced with constrained supplies and uncertainty surrounding the vital energy chokepoint, governments and industries have intensified efforts to lessen their dependence on oil. This adaptation is reshaping the energy sector's long-held assumption of continued demand growth. Oil prices remain elevated, with West Texas Intermediate crude trading above $90 per barrel and Brent crude near $93, roughly 30 percent higher than pre-war levels. Despite these high prices, the market's response is described as surprisingly restrained. However, this calm masks a more concerning reality: global oil inventories have been drawn down at a record pace, leaving little buffer should the disruption persist. The Strait of Hormuz, once considered vulnerable but dependable, has proven to be a critical vulnerability in the global energy supply chain over the past three months.

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The largest oil-supply disruption in modern history has accelerated the arrival of peak oil demand.