While the short time crude outlook continues to remain murky, the medium- to long-term outlook is also not rosy, the World Oil Outlook (WOO) 2019, released last week by the Oragnisation of the Petroleum Exporting Countries (Opec) concedes.
Owing to a weakening global economy, rising output elsewhere, and pressure from climate activists, demand for its oil over the next few years could be drastically weaker than previously thought, the outlook admits.
It said that demand for its oil may only reach 32.8 million barrels per day (mbpd) by 2024 - substantially lower than the 35mbpd in 2019, while it expects the supply of US tight oil to reach 16.9mbpd in 2024 from 12mbpd in 2019. It, however, underlines that the expansion in US output would ultimately slowdown and peak at 17.4mbpd in 2029.
For the first time since 1978, courtesy the shale revolution, the US recorded a surplus in the petroleum trade, at $252m in September, the US government data showed last week. The value of US petroleum exports stood at $14.966bn, while imports were at $14.714bn, resulting in the first surplus in the US oil trade in 41 years.
Climate change is also getting into the Opec calculations. The attention paid to the risks of demand destruction in the Opec report is also notable. The phrase “climate change” appears nearly 50 times in the report and it also acknowledged that electric vehicles are “gaining momentum,” Nick Cunningham writing for Oilprice.com pointed out.
The Opec report, however, emphasised it was “fully engaged and supportive of the Paris Agreement”.
In his preface, Opec Secretary-General Mohammad Barkindo continued to sound optimistic about Opec’s relevance. While renewables lead the way in growth going forward, he emphasised, “oil and gas are still forecast to meet more than 50pc of the world’s energy needs” in 2040.
Opec has also cut its medium- and long-term oil demand forecasts. “At the global level, growth is forecast to slow from a level of 1.4mbpd in 2018 to around 0.5mbpd towards the end of the next decade,” it added.
Demand destruction is also getting on the Opec radar. The organisation, which pumps almost a third of global oil supply, now sees oil consumption in 2023 reaching 103.9mbpd, down from 104.5mbpd projected in the last year’s report. Longer-term, oil demand is expected to increase by 12mbpd to reach 110.6mbpd by 2040, also lower than last year’s forecast.
Opec cites the recent lowering of economic growth forecasts plus efficiency gains and use of other fuels for the lower demand outlook. It now expects the oil use in industrialised countries, or those in the Organisation for Economic Cooperation and Development (OECD) countries, to decline after 2020.
Electric cars, while still a very small share of the global fleet, are “gaining momentum”, Opec admitted. They will account for nearly half of all new passenger cars in OECD countries by 2040, almost a quarter of those in China and more than 26pc globally.
Opec however, still hopes to boost production in the coming decades thanks to its abundant and cheap-to-extract resources. It expects supply from non-OPEC producers to hit a high of 72.6mbpd in 2026 and fall to 66.4mbpd by 2040.
Refuting the impression that the oil-producers are in for a doom, Barkindo said that while renewables lead the way in growth going forward, “oil and gas are still forecast to meet more than 50pc of the world’s energy needs” in 2040.
Even though the growth in consumption is slowing, “demand expands in every five-year period to the end of the time-frame,” Barkindo emphasised. As per the WOO, oil accounted for more than 31pc of global energy demand in 2018, ahead of coal (27pc) and gas (23pc). And, over the next 20 years, oil is forecast to remain the largest contributor to the energy mix, accounting for more than 28pc.
Published in Dawn, November 10th, 2019