A Look at Oil Prices, Three Years Later

After a sleepy few months, oil jumped back into headlines this week after the US announced sanctions on Russia’s biggest oil companies.^[i] The price of a barrel of crude jumped to $65.98 on Thursday from the $60.71 hit on Monday—which was near this year’s lows last seen briefly in May and, before that, in early 2021.^[ii] That move notwithstanding, we think oil prices’ journey over the past several years illustrates how a false fear can go from leading headlines to fading into the background—reminding investors why refraining from overreacting to the latest leading news story can be beneficial.

Before the US sanction news, oil grabbed a few eyeballs last week after the Paris-based International Energy Agency (IEA) estimated global oil supply would exceed demand by nearly four million barrels a day in 2026—a record oversupply.^[iii] The IEA’s prediction presumes trade uncertainty and consumers’ growing preference for electric vehicles will weigh on crude oil demand whilst supply continues to grow, thanks largely to producers outside the Organization for Petroleum Exporting Countries and its partners, known as OPEC+ (e.g., America and Canada). This sounds like a recipe for lower prices—and some Wall Street firms agree—though the IEA acknowledged some supply variables and uncertainties underpin its estimate.^[iv]

As we put this outlook in perspective, please note we aren’t picking on the IEA. In our experience, any forecast is subject to error. But for investors, we think understanding forecasts’ limits is critical to staying levelheaded—especially when it comes to oil, whose price movements frequently attract headlines throughout the financial publications we monitor.

In that spirit, let us revisit early 2022. After Russia invaded Ukraine that February—sparking warnings that Western sanctions on Russian oil would cause a global supply shock—Brent crude soared as high as $133 a barrel.^[v] Some outfits saw possible $200 a barrel dead ahead.^[vi] Against this backdrop, the IEA’s annual “World Energy Outlook” forecast crude oil prices over the next 25 years, based on several hypothetical government climate policy scenarios.^[vii] Two of the IEA’s models forecast a gradual decline in oil prices from 2022’s levels to $82 a barrel and $65 a barrel, respectively, in 2030.^[viii] Yet a mere three years later, Brent crude has already passed those projections.^[ix]

The IEA wasn’t alone in foreseeing higher oil prices several years later. In January 2022, America’s Energy Information Administration (EIA) projected crude oil prices would fall that year and in 2023—not predicting the price spike that would occur a few months later following the outbreak of war in Eastern Europe.^[x] Fast forward to 2024’s start, and the EIA was still forecasting much higher prices ($82/barrel in 2024 and $79/barrel in 2025), which haven’t come to pass.^[xi] Despite plenty of potential culprits for higher prices (e.g.,  supply-chain issues, OPEC+ production cuts and Middle East hostilities), global crude oil prices have trended downward since mid-2022. (Exhibit 1)

Exhibit 1: How 2025 Oil Price Forecasts Square With Reality

Source: FactSet, IEA and EIA, as of 21/10/2025. Brent crude oil price, 21/10/2021 – 20/10/2025. IEA’s STEP scenario is an estimate of global crude oil price based on governments’ current energy policies. 

Looking ahead, our research indicates oil’s supply and demand drivers may not be as mismatched as the IEA’s projected oversupply suggests. On the supply front, yes, non-OPEC nations are leading production growth.^[xii] US oil production continues to climb and is at record highs despite a decline in total active drilling rigs.^[xiii] That indicates US producers are doing more with less thanks to technological gains. The output also suggests to us that US producers are finding it profitable to pump despite lower oil prices, as our studies have shown US firms’ incentives tend to be market-driven.

But we don’t think persistent production will necessarily swamp demand. The IEA’s latest forecast had issues with unaccounted oil, as the agency couldn’t find nearly 1.5 million barrels per day of oil (about 1.4% of annual demand) in August. ^[xiv] The IEA blamed a lack of data availability from less developed countries. Perhaps, but as a Reuters analysis pointed out, the trading of sanctioned oil (involving Russia, Iran and Venezuela) and China’s massive stockpiling may also be throwing off the IEA’s numbers.^[xv] For instance, the IEA estimates Chinese crude stocks rose by 110 million barrels between April – August this year.^[xvi] Yet Beijing doesn’t officially disclose storage capacity or inventory change—so, what if the Middle Kingdom’s oil stock rose by much more?^[xvii] Supply and demand may be more balanced than the IEA forecasts, which wouldn’t be unheard of. OPEC’s forecasts, for example, suggest supply and demand are roughly aligned—arguing against a big oil price swing.^[xviii]

We think oil prices’ journey over the past three years shows the importance of thinking globally about supply and demand. Singular events understandably draw a lot of attention, and they may affect prices in the short term, as volatility can arise for any (or no) reason based on our observations of market history. But with very few exceptions (see COVID lockdowns), most headline developments on their own don’t have the power to swing oil supply or demand, in our view.

Of course, falling oil prices could carry political implications for some nations, including Britain. The UK’s windfall profits tax automatically sunsets if Brent crude is below $71.40 for six months. The current clock started on 31 July, and it is possible prices stay below that threshold—which could have consequences for some UK energy firms and may possibly factor into the seemingly never-ending political fight over deficits and tax policy.^[xix] But for global investors, oil price handwringing has been a long-running false fear and brick in the proverbial wall of worry bull markets climb.