No. 2026-10-A - Policy Discussion Paper: Management and Analysis of Disorderly Climate Transitions - Disorderly transitions in global oil markets

Abstract:

Six key findings from the analysis:

1. Demand for oil is almost certain to decline significantly. The extent of the decline will be determined by the pace of technology development and by policy.
2. The combination of transition uncertainties and the threat of geopolitical shocks could cause oil producers to alter their production portfolios significantly.
3. Over the next 10-15 years, enough of a transition is locked-in to decrease expected price volatility and sensitivity to potential geopolitical shocks, despite transition uncertainty and changing production portfolios. An accelerated transition would decrease volatility and sensitivity further.
4. Future oil prices will be highly dependent on the outcomes of technology development, policy, and geopolitical shocks, with a wide range of price levels possible.
5. Median prices are heavily influenced by the speed of the transition, with faster transitions leading to lower prices, although producer responses set an effective floor to prices.
6. Simulation modelling of global oil markets could facilitate developing tools to manage uncertainty and risk.

This analysis is part of a wider body of work exploring the financial risk for countries, companies and investors of changes to the global economy associated with mitigating climate change.