OPEC Bullish on Long-Term Oil Demand, but Doubts Emerge

_{^{[Source – reuters.com]}}

Oil Prices Fall Amidst OPEC+ Concerns

In early September, global benchmark Brent crude prices dipped below $70 a barrel, marking the lowest point in 33 months. While this decline is a welcome development for consumers looking at lower fuel prices, it presents a serious challenge for OPEC+. The organization, which relies heavily on oil revenues, is facing pressures as low demand forecasts and increasing supply from non-OPEC countries threaten to keep prices subdued.

In a bid to stabilize the market, OPEC+, led by Saudi Arabia, recently announced a two-month extension of its production cuts. However, this strategy has yet to yield any significant impact on prices, prompting speculation about whether the industry has reached “peak oil”—the point at which demand growth plateaus.

OPEC’s Optimistic Forecast

Despite the current bearish market sentiment, OPEC remains resolute in its long-term outlook. In its 2024 World Oil Outlook report, the organization projects a robust increase in global energy demand, estimating a 24% growth between now and 2050. OPEC anticipates that oil demand will reach 112.3 million barrels per day by 2029, an increase of 10.1 million barrels per day compared to 2023 figures.

In stark contrast, the International Energy Agency (IEA) foresees a more cautious scenario. According to its mid-term outlook published in June, the IEA expects oil demand to stabilize around 106 million barrels per day by the end of the decade, signaling a potential peak.

Diverging Views on Future Demand

The debate over future oil demand has become increasingly prominent, particularly as the IEA advocates for a transition towards a net-zero future. Meanwhile, S&P Global Commodity Insights presents a middle-ground view, projecting that oil demand will peak at 109 million barrels per day in 2034 before gradually declining to below 100 million barrels per day by 2050. OPEC, however, maintains a far more bullish stance, predicting demand could soar to 120 million barrels per day by mid-century.

Despite these differing forecasts, a consensus is emerging that demand will decline in developed markets while rising in emerging economies, particularly in India.

Medium-Term Outlook Remains Bearish

Looking ahead, analysts remain bearish about oil demand and prices, even in light of OPEC+’s recent decision to extend production cuts through December. The prevailing sentiment is that these measures will do little to reassure skeptics regarding market stability.

Market experts are increasingly focusing on the implications of transitioning towards alternative energy sources. The rise of biofuels, particularly in sectors like maritime transport, highlights the shift away from traditional oil dependence. Analysts suggest we may be entering an era characterized by stagnant demand growth rather than a complete move away from oil.

External Factors Impacting Prices

China, the world’s largest oil importer, presents another significant challenge to OPEC+. The country is making strides towards electrification and is experiencing a slowdown in oil demand. Analysts note that China’s economic growth has been steady but modest, hovering between 3% and 5% in recent years. More importantly, China is consciously aiming to reduce its reliance on oil and gas imports through policies that encourage electric vehicle adoption and the expansion of renewable energy sources.

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In the near term, OPEC+ is expected to reinstate some production in December, even as several member countries exceed their output quotas. This influx of supply from both OPEC+ and non-OPEC producers, including the U.S., Guyana, Brazil, and Canada, complicates any prospects for a significant price rebound.

Long-Term Decline Driven by Demand Changes

As we look to the future, many analysts suggest that if the oil era does decline, it will be due to changing demand rather than dwindling supplies. The late Saudi oil minister Ahmed Zaki Yamani famously remarked that just as the Stone Age ended not for lack of stones, the Oil Age will conclude, but not for lack of oil. This perspective underscores the ongoing transformation within the energy landscape as we navigate through evolving market dynamics.