OPEC’s Favorite Oil Illusion

In the mid-1980s, oil traders and policymakers swore the world was drowning in crude; they even called it a glut. 

Prices collapsed, producers panicked, and the great black tide of the global economy looked like it would never run short again. 

But… the glut was an illusion. The oversupply was temporary, and the complacency dangerous. Within a few years, the same chorus of analysts who had sung about abundance were scrambling to explain why prices were climbing again.

The same song is playing today, except now the lyrics have been updated with words like “energy transition” and “net zero.” Despite the cheap oil price environment, another myth persists in the crude sector — that markets are balanced, demand is peaking, and cheap crude is here to stay. 

Unfortunately, nothing could be further from the truth. 

And if history has taught us anything, it’s that every time the world convinces itself that oil is plentiful, reality has a nasty habit of proving otherwise.

It’s not like we haven’t caught the IEA in this lie before. Truth be told, Fatih Birol and company shamelessly insisted for years that global oil demand would peak before 2030, a forecast that fit neatly into the political mood music of the last decade.

Why wouldn’t they sing that tune? After all, western policymakers wanted a clean narrative that made oil look like a dying industry. 

Investors were told to treat fossil fuels as stranded assets in the making. But now, with the next edition of the IEA’s World Energy Outlook just weeks away, word has leaked that the agency is preparing to walk back its prediction of peak oil demand. 

That’s not a small revision — it’s simply another confession.

It’s also not the first time the IEA has been caught playing historical dress-up with its own numbers. Anyone who digs through their archives will find quiet revisions, retroactive adjustments, and updates that quietly acknowledge the agency was far too optimistic about a rapid shift away from hydrocarbons. 

When the world’s premier energy forecaster spends more time explaining why its old charts don’t match reality than it does predicting the future, you know the narrative is cracking.

If you recall, those cracks widened earlier this month when the IEA itself issued a warning that low oil prices are setting the world up for a supply crunch. They admitted that without higher prices to fund upstream investment, the industry is set to lose the equivalent of Brazil and Norway’s combined production every single year. 

No, that isn’t a typo. 

Every year, the natural decline rates of existing oil fields eat away at supply, and only new projects can plug the gap. You know just as well as I do that cheap oil today means less drilling tomorrow, and that will ultimately lead shortages down the road… even the IEA couldn’t spin that into a happy ending.

The myth of balanced markets rests on two shaky pillars: the idea that global demand is weakening, and the assumption that non-OPEC supply will keep filling the gap.

Let’s be clear here: Both of those ideas are delusional. 

Demand is not only stronger than forecasted, but growing in places that most analysts habitually underestimate. China and India are not about to give up gasoline cars or jet fuel just because a European commissioner puts another solar farm ribbon-cutting on television. 

Meanwhile, African nations, southeast asia, and latin america are all on upward curves when it comes to oil demand, much like the western world had throughout the 20th Century. 

Billions of people still want the basic benefits of oil-powered economies — cars, air conditioning, travel, shipping, and industrial growth — and no bureaucrat’s forecast will erase that.

We can’t forget the coming supply shock, either. 

For years, non-OPEC growth has been treated as a kind of magic trick that would allow the world to wean itself off Middle Eastern dependence. And the centerpiece of that production growth was in the Permian Basin. The Permian play has been the backbone of U.S. production growth, and the sole reason America could boast about becoming the world’s largest oil producer. 

Now that backbone is starting to show strain. 

According to the EIA, the Permian accounts for more than 40% of U.S. oil production growth, with just ten counties accounting for 93% of that growth. 

When that engine slows, non-OPEC supply growth hype falls apart.

The warning signs are already flashing, and even shale executives themselves are openly warning us that cheap oil, paired with Washington’s policy whiplash, is breaking their business model. 

CNBC reported just this week that U.S. shale companies are cutting back investment because prices under $65 a barrel don’t support the costs of new drilling; those costs are climbing. 

There’s even some reports that suggest production costs will climb to $95 per barrel within the next ten years. 

Once you recognize that demand isn’t rolling over and that non-OPEC supply isn’t the bottomless pit everyone believes, the illusion of a balanced market collapses. 

What’s left is the uncomfortable truth that OPEC still holds the cards. And trust me, OPEC has no interest in keeping oil cheap for the sake of American commuters or European central bankers. 

If anything, they’ve spent the last decade patiently biding their time, waiting to wrestle back control of global crude markets. 

And you know what? They’re close to having it. Once they have that leverage, there’s no getting it back. 

The beauty of illusions is that they don’t last forever. 

In the 1980s, the glut illusion collapsed once demand proved resilient and supply growth slowed. 

Prices rebounded, and those who had written off oil as a stranded industry were left blinking at their screens as crude rose again. The same dynamic played out in the mid-2000s when oil went from $30 to $140 in a matter of years, catching nearly everyone off guard. 

It’ll happen again, because the fundamentals never change, because no matter what clean energy fantasies float out of the IEA, oil is the lifeblood of modern civilization. 

History has already given us the ending to this story. 

The narrative calling for a global oil glut is nothing more than an illusion, and the revisions are coming. 

Is your portfolio prepared?