Oil’s Calm Before the Storm: Hidden Weaknesses, China’s Stockpiles and the Oil Demand Mirage

Juan Diego Celemín Mojica  https://cleantechnica.com

Excerpt, link to full article with graphs:  https://cleantechnica.com/2025/10/14/oils-calm-before-the-storm-hid...

A year ago, I published an article on Peak Oil Demand and the impact EVs would have in the world’s most traded commodity. I thought a followup was worth it by now because some things have become clearer, but more importantly, because weird things have been happening in the world of oil.

This will be a long article, but to summarize: it seems we don’t know if we have too much oil or not enough of it; there’s a heated debate on the current situation of the market with the possibility of an imminent glut being insisted upon; and most interesting of all, some data seems to point out that Peak Oil Demand may already be behind us … yet almost nobody’s commenting on it.

Before we start, let’s present some basic concepts. In the ’50s, the work of M. King Hubbert accurately predicted US oil production peaking in the ’70s, hence presenting the concept of Peak Oil — that moment upon which existing reserves cannot sustain oil extraction levels and thus an inevitable reduction ensues. As the Climate Crisis loomed upon us, and as technological developments (including fracking) and newly found oilfields around the world bucked the trend and allowed for renewed growth in oil extraction, the concept migrated to Peak Oil Demand — the idea that improvements in technology motivated by political incentives would instead lead to a situation where oil consumption would peak and then steadily reduce.

The predictable path that should’ve been

Oil demand is not growing as it once did and will soon cease to grow at all. At least, that’s what most of us here at CleanTechnica believe — if you ask me, with very good reason.

As a commodity long defined by scarcity, with oil giants scrambling to find new production as demand kept rising for over a century, oil economies have never had to deal with faltering demand through a long period. In this scenario, the economies of oil extraction would completely change: prices would steadily plummet, nearing the marginal production cost (this is, the cost of the most expensive producer still capable of competing), then steadily reduce as demand further weakens. It’s important to mention that lower prices would mean less financial incentive to switch off fuel. Though, they would also mean less profit for oil corporations to spend influencing public policy.

If you ask me, this is what should’ve happened. But it seems the realities of oil production are much more complex (and much messier) than what this simple scenario would account for. And right now, what we’re seeing is a steeper than expected downward trajectory in prices in the medium term thanks to an — alleged — oil glut.

The [possible] upcoming glut

A glut is defined as an excess in oil extraction relative to demand (whereas a crunch is the opposite: a lack of enough supply to satisfy demand).

Thanks to massive investments through the past few years in oilfields in the US, Guyana, Brazil, and Argentina (amongst others), and to OPEC finally lifting its own production restrictions, the oil market is currently increasing supply at a rate that the tepid demand growth is unable to match. According to multiple reports, this increased excess has had a limited impact on prices so far thanks to geopolitical instability and the traditional peak in oil consumption during summer in the Northern Hemisphere, but winter is now coming and the geopolitical situation is stable thanks to the Peace Deal in Gaza, for now.

What this means is: prices are trending down and should remain down, absent any (new) conflict or escalation in oil-producing regions.

Now, calculating both oil demand and oil supply is hard, which is why only large institutions really give it a shot … and the differences between their numbers are substantial. Regarding supply, we see the US-based EIA and the Paris-based IEA report higher extraction levels compared to OPEC:

OPEC’s narrative insists on a balanced market, claiming that there is enough demand to justify the 1.4 mb/d increase in extraction from members of the Cartel through 2025. This is the likely reason they estimate production at a lower level and demand at a higher level than both the EIA and the IEA:

Subtracting oil demand from oil supply, we find that whereas OPEC is assuming a deficit of ~320.000 b/d for Q3, both the EIA and the IEA calculate a surplus of over 2 million barrels a day. This — alleged — overproduction is the reason at the core of the coming oil glut.

Furthermore, even if the oil market is quite opaque, there seems to be evidence of this glut materializing. According to the IEA’s October report, oil inventories have been rising fast since August at least, whereas Bloomberg recently reported that oil-in-water (this is, oil being transported from source to destination) rose to its highest levels since 2016, with over 10 days of global production currently at sea, not including sea storage. As happened last year, I tend to believe available data supports the IEA/EIA narrative and not OPEC’s.

In theory, the market should self-correct. In theory, lower prices would promote oil consumption at the same time as they discourage investment, with production falling steadily until an equilibrium is found. Such is the way things used to be, at least.

But a warning is being raised that this may no longer be the case, and for this matter we need to focus on the IEA’s most recent report on oilfield depletion.

The IEA’s warning

We all know investment is required to produce basically anything, and in the times of fore, investments in oilfields would provide significant returns on these investments through a very long, predictable period of production. This was true of “conventional” oilfields, but as the IEA’s recent report on oil decline rates warns, it turns out that there does not seem to be a lot of those left:

Non-conventional oilfields, and shale in particular, present a different picture: unlike conventional oilfields, they do not have a long, dependable period of production, depleting quickly and requiring significant investments to remain productive for a longer time. That, we already knew.

The issue the IEA raises is that the depletion is happening faster than expected, and that the investments to keep them up and running is also higher than expected. Non-conventional oilfields produce as much as 80% of their total production in the first two years (compared to 10% for conventional ones). As 90% of all investment in oil is going to sustain current production and only 10% is going to new exploration, the oil industry has to run ever faster only to stay in the same place: absent re-investment, oil production would plummet, falling by as much as 70% through 2035.

Regarding US shale, this has been a long time coming issue, with reports indicating that US shale could rise to $95 per barrel in 10 years amidst systematic lower productivity due in a large part to their own short-sightedness and disregard for the environment, as they systematically re-injected wastewater to a point where high pressures no longer allow for profitable production. New shale oilfields, such as Argentina’s Vaca Muerta, will be subjected to similar limitations as their own resources deplete.

And so, the IEA warns, we have a perfect storm of lower prices due to the immense glut coming, which will in turn curb investment in oil production. But instead of a gentle slope, what comes next is a freefall in oil extraction, risking a crunch in the not-so-distant future, and bringing higher prices and energy insecurity to the masses … those that are still highly dependent on oil, at least.

And since the average time to find a new oilfield is now 7 years (once you get your exploring license), higher investment won’t guarantee immediate increases in supply, meaning the crunch could last a while.

Oil-related media is insisting in the above scenario as proof that we need to invest more political will (read: subsidies) in oil and gas exploration to prevent an energy crisis. For me, this clearly means we must work harder than ever to make our communities, our regions, and our countries as independent as possible from fossil fuel energy, so that we may be better able to weather the storm, should it ever come.

But the crux of the matter here is that lower demand will not necessarily translate to lower oil prices in the short-to-medium term, instead triggering a — possible — oil crisis. And this brings us to the last part of this report: the possibility that Peak Oil Demand may have already passed by us.

Sort of.

Is Peak Oil Demand behind us?

China does not provide a lot of information on its oil usage, but through indirect measures (imports, exports, refining, etc.), a consensus has been building through the last few weeks: China is importing nearly as much oil as ever, but a substantial portion of it is not being used. Instead, China is stockpiling.

According to the EIA, the country averaged 900,000 barrels a day going into its reserves ..., and other reports claim that new stockpile sites with capacity for 160 million additional barrels are being built. It has been widely reported that, amidst tepid demand and increased supply, it’s the Chinese stockpiles that have brought some stability to the... and prevented prices from plummeting.

But that brings an interesting conundrum. According to OPEC, global oil demand has grown by around 1.4 mb/d, yet the EIA estimates this number at 1 million, and the IEA at around 800,000 b/d. If China is indeed stockpiling nearly a million barrels a day, this means that real demand could already be in the negative. Since stockpiles work by bringing demand forward in time, once China’s reservoirs are full, the impact in the oil industry could be substantial — not only will they stop buying a large number of barrels a day, but they will be able to sustain themselves with local stockpiles for a significant period.

So far, I haven’t found anyone mentioning this, probably because stockpiles are not considered apart from readily used oil in demand estimates. But China is likely to be stockpiling for political reasons, either in preparation for a long confrontation with the US, or to take advantage from discounted barrels from Iran, Russia, and Venezuela that could evaporate at any moment.

If one is to make a realistic calculation of global oil demand, China’s political motivations to stockpile (instead of economic, market-related ones) must be taken into account, more so as these 900,000 barrels a day of demand will evaporate once China’s stockpiles are full.

Final thoughts

The oil industry is extremely big, extremely complex, and not very transparent. This means that truly knowing what’s going on is hard, despite some very large institutions devoted to precisely this matter.

Information is all over the place, but some things are clear. We know US shale cannot grow its production if WTI (now at $58.59) sits in the low 60’s or below. We know that OPEC’s ability to increase oil supply in the short term (“spare capacity”) seems to be on its last legs. We know that EV sales are growing worldwide at the expense of combustion vehicles.

Yet many factors remain very hard to pin down when you’re not an insider at a high level in the industry. How rapidly can Venezuela’s massive oil reserves be put into production in the event of a crunch? How expensive are Brazil’s ultra-deep oilfields? What’s the breaking point for Argentina’s Vaca Muerta basin? (I’ve found numbers going from $45 to $65.) How much will Ukraine’s attacks affect Russia’s oil production and consumption? Are we talking thousands of barrels a day? Hundreds of thousands? All these factors can dramatically change the equation from the supply side, even if US shale is as vulnerable as the sources say, even if OPEC really is not capable of rapidly ramping up supply.

The demand part of the equation seems clearer to me. Amidst a massive deployment of renewable energy and EVs throughout the world (and with a little help from the economic downturn caused by all the maker chaos brought by Trump), oil demand is not growing as it once did and could be near a downturn.

Still, the picture remains murkier than I’d like. I’d love to hear your comments on these matters, and whether you think the analysis here presented is sound.