FXStreet notes that US oil prices hit an all-time high of $145/barrel on July 4, 2008. Today, the same barrel of oil is worth about $40 and instead of a peak in oil supply, commodity markets are now contemplating a peak in demand. How we got here is a story of technology and environmental advocacy, and one that has material cross-asset implications, as per Morgan Stanley. 

“The technological shift was in shale oil. New processes allowed producers, largely in the US, to dramatically increase output and do so much more cheaply than things like deep-water drilling. US oil production, which had declined steadily from 1985 to 2008, has more than doubled in the years since. But a shift in environmental attitudes has mattered as well. New technologies have improved energy efficiency, while green investment is becoming a major policy theme.”

“One of the largest oil producers recently released long-term projections for oil over the next 20+ years. Those projections saw oil demand failing to ever really rise above pre-COVID levels in their base case. And in the scenario where there's even greater environmental policy action than we see today, oil demand could fall materially.”

“We think prices will really struggle to move above $50/barrel, as levels above this will encourage producers to hedge much more aggressively at these prices. As such, oil prices should lag other ‘reflationary’ assets in this cycle that we like a lot more.”