For about two months now, signals from the oil market have pushed traders from one extreme to another, as headwinds clash with tailwinds, with the global economic slowdown countering fears of a shortage. In the past couple of weeks, the see-sawing has increased considerably, as both concerns about the slowdown of the global economy and fears of an oil or fuel shortage intensify. As a result, the oil market has become a very confusing place.

Earlier in October, for example, the International Monetary Fund issued a stark warning about the global economy. In it, the IMF’s Economic Counsellor and Director of Research, Pierre-Olivier Gourinchas, wrote that “The 2023 slowdown will be broad-based, with countries accounting for about one-third of the global economy poised to contract this year or next.

The three largest economies, the United States, China, and the euro area will continue to stall. Overall, this year’s shocks will re-open economic wounds that were only partially healed post-pandemic. In short, the worst is yet to come and, for many people, 2023 will feel like a recession.”

Naturally, such a forecast is rather bearish for oil, but at the same time, warnings have been flashing about the state of the diesel market. U.S. inventories of distillate fuels are at record lows, demand remains robust, and an impending EU embargo on Russian fuels are all contributing to the shortage, whose original cause was the reduction in refining capacity in both Europe and the U.S. and the faster-than-expected rebound in demand after the pandemic lockdowns.

It’s getting worse by the day, too. CNBC called it a perfect storm, with low inventories combining with rising demand ahead of winter, which is a recipe for even higher prices spilling out across industries and hitting consumers’ already emptying pockets.

Ultimately, then, the diesel crisis should also be bearish for oil demand, but only theoretically. Diesel moves economies. Demand destruction will only appear when the supply situation becomes catastrophic, and this would certainly involve a dip into recession. Yet even then, the demand destruction would be limited—like oil, its derivatives are quite inelastic when it comes to price.

The latest figures about institutional trades are telling. Reuters’ John Kemp writes that while big speculators made two large purchases of crude over the last four weeks, at 62 million barrels and 47 million barrels, and then made two large sales, at 34 million barrels and 50 million barrels during the same period.

OPEC meanwhile raised its forecast for long-term oil demand and once again reiterated its calls for new investment in fossil fuels, just days after the IEA said oil and gas demand are about to peak in a few short years as we expand wind and solar capacity.

“The overall investment number for the oil sector is $12.1 trillion out to 2045,” said OPEC’s secretary-general Haitham Al Ghais at the ADIPEC conference in the UAE, as quoted by Reuters.

“However, chronic underinvestment into the global oil industry in recent years, due to industry downturns, the COVID-19 pandemic, as well as policies centred on ending financing in fossil fuel projects, is a major cause of concern.”

This means that the future supply of oil in volumes that correspond to demand is not guaranteed at all. Neither is the buildout of wind and solar because of a looming copper shortage, which two mining executives have warned in the past couple of weeks will be severe. In addition, Indonesia is mulling over an OPEC-style organization for battery metal miners, which would make the supply chain for the energy transition even more challenging.

Investment in new oil production does not seem to be lined up and ready to go, either, amid the peak-demand scenarios. This suggests the oil market will remain an extremely uncertain place for the observable future or at least until those countries that are expected to slip into recession do so.