After a turbulent two weeks, a sense of calm has been restored. This feeling of normality is a welcome development although one must be prepared for the re-emergence of the mayhem. All it takes is a stray missile or a hostile social media post. For now, however, the shaky Israel-Iran truce remains in effect. Our base case scenario, therefore, is that investors, whilst they will keep their watchful eyes on the Middle East, are shifting their focus back to the macroeconomy and oil balance. Global equities jumped to record highs yesterday because market players are becoming confident of a September rate cut as Donald Trump revived his attack on the Fed chair. Tomorrow’s release of the US PCE, the Fed’s preferred gauge of inflationary pressure, will go a long way either to confirm or discourage these expectations. On the geopolitical front, the proverbial smoking of the pipe of peace between NATO and the US was most likely met with growing anxiety in the Kremlin and loud cheers in Kyiv.

Oil edged higher, the only surprise was that it did not rally harder. The weekly oil statistics on US oil stocks were unconditionally bullish as the major categories all registered significant drawdowns: crude oil 5.9 million bbls, gasoline 2.1 million bbls, distillates 4.1 million bbls taking commercial inventories 4.2 million bbls lower than the previous week. Implied demand holds resolutely above 20 mbpd as refiners supplied 9.7 mbpd of gasoline last week, the highest since December 2021. Monthly forecasts on the 2H 2025 oil balance insinuate considerable stock build, the weekly IEA data on US stocks, which make up 45% of OECD stockpiles, nonetheless, suggests that the swelling of oil stockpiles has not begun just yet.

Investment into Renewables Continues Unabated

For the past 10 years, the IEA has produced annual reports on investment into energy, including fossil fuel, renewables and nuclear. The updated version, released at the beginning of the month, aims to provide a review of energy investment in 2024 and a preliminary assessment in 2025. It examines the key aspects of the investment landscape in light of the perpetual changes in geopolitics, the global economy and trade. It intends to provide a helping hand in tracking capital flows in the energy sector and, perhaps most importantly, it compares investments in fossil fuel with those of clean energy. 

The bottom line, according to the IEA, is that capital continues to flow into the energy sector. It is projected to reach around $3.3 trillion in 2025, representing a 2% annual increase in real terms. Two-thirds of this total will be directed toward renewables, nuclear, grids, storage, low-emission fuels, efficiency, and electrification. The remaining third will go to fossil fuels, including oil, gas, and coal. Although some investors remain hesitant due to the unpredictable economic and trade environment, no significant adverse impact has been observed on existing projects.

The sharp increase in investment in the transition from fossil fuels to renewables notably accelerated after the global economy began to recover from the COVID-19 crisis. Climate policies—combined with recovery packages, economic and industrial strategies, and technological advancements—have all played a role in accelerating the shift. The IEA estimates that 70% of the growth in spending came from net fossil fuel importers, such as China, India, and Europe. China’s drive to reduce its energy dependence on foreign oil and gas producers has led to notable technological innovations. In India, investment in solar energy has significantly accelerated. Europe was forced to speed up investment in renewables as Russia ceased to be a reliable supplier of oil and gas. 

The "Age of Electricity"—marked by the rise of artificial intelligence, the proliferation of data centres, the expansion of electric mobility, and growing electricity demand for industry and cooling—has also influenced investment trends. The IEA highlights that, a decade ago, investment in fossil fuels was 30% higher than in electricity generation, grids, and storage. Today, the trend has reversed: the $1.5 trillion expected to be spent on the electricity sector will be 50% higher than spending on fossil fuels.

Low-emission power generation has doubled over the past five years and is expected to reach $450 billion, driven predominantly by solar photovoltaics, both rooftop and utility-scale. Nuclear energy is experiencing its renaissance, with investment in new plants and refurbishments projected to rise by 50% over five years, reaching $70 billion. While investment in electricity generation is estimated at around $1 trillion, grid spending lags at approximately $400 billion annually. To ensure energy security, grid investment must match the level of spending on generation.

The IEA’s initial forecast of stagnant upstream oil and gas spending in 2025 has been revised downward due to declining oil prices. As a result, upstream oil investment is expected to fall by 6% this year—the first annual contraction since 2020 and the largest since 2016. Total upstream oil and gas investment is projected to reach around $570 billion in 2025, with 40% allocated to arresting production declines at existing fields. US tight oil spending is anticipated to be just 90% of last year’s level. Investment in the refinery sector is also expected to fall to its lowest level in a decade.

Spending on new LNG projects will grow substantially, particularly in the US, Canada, and Qatar. While investments in low-emission fuels are expected to reach record levels, they remain low in absolute terms. Carbon capture, utilisation, and storage (CCUS) projects could see a tenfold increase in investment if all approved plans are implemented. A projected 4% annual increase in coal project investment will be confined to China and India to meet domestic demand.

Reflecting on the past decade, the key takeaway from the latest report is a "major shift in investment towards low-carbon sources of power generation." Decision-makers now face unprecedented risks arising from geopolitical tensions and the irreversible transformation of the global order. At the same time, a broad array of new technologies is available to help them make informed decisions that ensure energy security, sustainability, and affordability.

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