Despite the International Energy Agency (IEA), the Organisation for Economic Co-operation and Development energy watchdog, continuing to emphasise, and in no uncertain terms, that the era of oil demand growth is coming to an end, what is making Prince Abdulaziz bin Salman, the Saudi petroleum minister, so ebullient and convinced that the global crude demand will continue to grow in the decades to come?

The International Energy Agency is strongly of the view that global oil demand growth is slowing down. And that by 2030, at the latest, global energy consumption would begin to go down. However, Prince Abdulaziz bin Salman and his team continue to be positive about the future crude oil demand scenarios. They are convinced that the global oil demand will continue to grow, at least until 2045.

The IEA and the Organisation of the Petroleum Exporting Countries (OPEC) are on a warpath. The IEA and the OPEC and its allies in the OPEC+ are looking at the market conditions through completely different prisms, continuing to emphasise their respective, contradictory readings of the oil market sentiments.

Despite strong refutation by the IEA and the weakening of crude markets in recent weeks, Saudi Arabia, the OPEC kingpin, continues to be convinced that the global crude demand is projected to go up and not down in the foreseeable future.

Saudi Arabia is convinced that the global crude demand is projected to go up

Oil demand is healthy, and speculators are to blame for the recent drop in crude prices, Bloomberg quoted the Saudi energy minister Prince Abdulaziz bin Salman as saying. “It’s not weak,” he told reporters in Riyadh when asked about the decline in oil prices. “People are pretending it’s weak. It’s all a ploy.”

That was a strong rebuke to the IEA. The minister said some participants in the oil market have been misunderstanding increases in oil exports in recent months from Arab nations in OPEC and their correlation with those countries’ production. Shipments are seasonal and tend to dip in summer, then rise again in September and October, meaning they should not be viewed as reflecting fluctuations in output, he said.

“It’s an abuse of numbers to fail to distinguish between rising exports and rising production,” said Prince Abdulaziz.

Despite the odds, and indeed with some strong reasoning, Saudi Arabia and other OPEC+ member states, therefore, continue to bet on rising global demand for fossil fuel over the next few decades. It is lashing out at the IEA’s projections of an imminent end to oil and gas demand growth.

The OPEC insists that “such narratives only set the global energy system up to fail spectacularly. It would lead to energy chaos on a potentially unprecedented scale, with dire consequences for economies and billions of people across the world.”

Even amid an energy transition, hydrocarbons and petrochemicals will be required, the OPEC continues to insist. And to be fair, OPEC has a point. To understand the logic behind Prince Abdulaziz’s arguments, one needs to look at the slumping global oil price over the last few weeks from a slightly different perspective.

Irina Slav said that the latest price decline is taking place amid weakening doubts about Middle East supply disruption because of the Israel war with Hamas in her recent Oilprice.com piece. Initially, the so-called war premium added a few dollars to the benchmarks, but as time passed and no disruption occurred, the premium began to run out of steam.

Ms Slav also highlights the fixation of the markets with Chinese economic data that reported a contraction in exports in October. The data made traders think China is slowing down. But there was also a simultaneous increase in oil imports.

Thus, despite all the negative data and news emanating on the health of Chinese industrial output, only last Tuesday, the International Monetary Fund (IMF) upgraded China’s economic growth outlook for both this year and the next. The IMF now expects China’s GDP to grow by 5.4 per cent, up from 5pc projected in previous forecasts.

Regarding demand for oil in the West, the European Union recently held an emergency meeting to discuss the unenviable state of its fuel inventories and the possibility of setting up something like a strategic reserve of diesel. This does not exactly suggest a lower demand for oil and its products, but rather a lower-than-desired supply, Ms Slav argues.

At the same time, however, OPEC exports are also on the rise. “OPEC crude exports are up by about one million barrels per day (bpd) since their August low. This was apparently because of seasonally lower domestic demand in the Middle East. It seems there is too much supply to be absorbed by oil-consuming nations,” UBS analyst Giovanni Staunovo told Reuters. The downward journey of the oil markets in recent weeks could also have been a result of the increased supplies, one can’t help arguing.

Further, despite the emphasis by the IEA on the growing number of electric vehicles on the street, impacting global oil consumption, it is now being reported that the makers of these EVs are not exactly optimistic about their electric bet. Lower than expected demand is plaguing the industry, and so are various challenges ranging from higher insurance premiums to insufficient chargers to weather-dependent performance, industry press is reporting.

Prince Abdulaziz bin Salman is not naïve, one needs to concede. He and his bunch of experts keep a very close eye on the markets — but through a prism — conceivably different from that of the IEA. And one cannot truly write off their reasoning, too. After all, Saudi Arabia would not go ahead and invest billions in increasing its output capacity — without solid reasoning.

Similarly, oil majors Exxon and Chevron are no fools to go ahead and acquire, over the last few weeks, Pioneer Natural Resources and Hess, two major fossil fuel companies, at a combined cost of more than $100 billion. And in the meantime, several countries and oil majors are already falling back on their Net Zero commitments. All these cannot be without a reason.

For a change let’s put on Prince Abdulaziz’s prism. And this is no good news for the green lobby.

Published in Dawn, The Business and Finance Weekly, November 20th, 2023

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