OPEC is optimistic about oil demand: the peak is far away and prices will rise. Are these forecasts wrong? According to some analysts, yes, and here’s why.
OPEC has been optimistic about the oil market’s future, predicting continued growth in demand over the coming decades that will boost its revenues.
However, its rosy estimates of oil consumption may be wrong. Looking at the dynamics of the sector in recent weeks the signs are not so reassuring.
Brent futures, the global benchmark for crude, fell below $70 a barrel in early September, the lowest level in 33 months, cheering consumers, who will consequently see lower prices at the pump. The decline, however, is a “nightmare” for OPEC+, for which oil revenues are essential.
The oil cartel led by Saudi Arabia earlier this month decided to delay increases in oil production for another two months in an attempt to support prices, but so far without success. Low global demand forecasts, combined with new oil supply from non-OPEC countries, herald a prolonged period of low crude prices.
Some analysts are therefore wondering whether “peak oil” is now upon us. Has demand growth peaked, and is it just going to decline from here? According to OPEC forecasts, the answer is adamantly no. But the math could be all wrong.
OPEC optimism on oil demand. But are the estimates correct?
The World Oil Outlook 2024 report by the oil producers group, released on Tuesday, September 24, forecasts a strong growth in energy demand of 24% globally between now and 2050.
It also estimates a “robust medium-term growth” in oil consumption, reaching 112.3 million barrels per day in 2029, an increase of 10.1 million barrels per day compared to 2023.
The demand for crude oil will then mark a staggering 120 million barrels per day by 2050.
In short, the producers’ organization said that phasing out oil is just a “fantasy”, as demand will continue to grow until at least 2050, a key year in the fight against climate change.
Introducing the World Oil Outlook, OPEC Secretary General Haitham Al Ghais said that oil and gas now make up well over half of the energy mix and are expected to do the same in 2050.
“What the Outlook highlights is that the fantasy of phasing out oil and gas has no bearing on the facts. A realistic view of demand growth expectations requires adequate investment in oil and gas, today, tomorrow and for many decades to come,” Al Ghais added.
His position - which mirrors the cartel’s optimistic calculations - was clear and categorical: “There is no peak in oil demand on the horizon.”.
A fair number of energy analysts seem to disagree with these calculations, not least those at the International Energy Agency. OPEC’s forecasts therefore risk being wrong. Meanwhile, they are contradicted by other numbers, in a heated debate about what the future of energy will be.
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Why are OPEC’s oil demand figures wrong?
The IEA actually sees demand stabilizing by the end of the decade at around 106 million barrels per day, according to its medium-term annual forecast released in June. Global oil demand is projected to increase, but only slightly, and is expected to peak by 2030.
The forecast battle between OPEC and the IEA has gained visibility in recent years, with the latter organization pushing hard for a net-zero emissions future.
Meanwhile, S&P Global Commodity Insights has forecast an intermediate medium-term future, with demand peaking at 109 million barrels per day in 2034 and gradually declining to below 100 million barrels per day in 2050.
All parties, however, agree that demand will decline in developing countries, while it will increase in emerging markets, led by India.
There is some evidence behind OPEC’s miscalculations, according to industry strategists. From rising electrification to China’s economic - and thus demand - crisis, there are several external factors to consider when making oil forecasts.
“The biggest threats to price increases for OPEC+ are external,”, Li-Chen Sim, a non-resident scholar at the Washington-based Middle East Institute, told CNBC.
These are mainly “sluggish demand, especially from China, and oil supply from non-OPEC+ sources and domestically; some members are producing more than their allotted quotas.”. “Estimations from international and Chinese sources point to a slowdown in demand for oil and refined products in China,”, Li-Chen Sim added.
That’s partly due to the country’s slowing economic growth, which in recent years has been around 3-5% a year, but still better than many other countries.
“But there’s also a structural element to reducing oil consumption, driven by a conscious effort to reduce its high dependence on oil (and gas) imports, and expressed in policies such as the adoption of electric vehicles and encouraging the expansion of renewable and nuclear power,”, Sim added.
Not only that. In the near term, OPEC+ is expected to restore some production in December, several OPEC+ countries are producing above their quotas, and more supply is coming to market from non-OPEC+ producers such as the United States, Guyana, Brazil, and Canada.
“It’s hard to see prices moving higher from here as long as there’s a threat in the market to bring those supplies back,”, said Dave Ernsberger, head of market reporting at S&P Global Commodity Insights.
In the long term, however, the eventual decline of the oil era, if it ever occurs, will be caused by the change in demand rather than by the decrease in supply, many analysts argue.
In a changing world, with the energy sector more involved than others in this vortex of changes, OPEC’s optimism could therefore be overestimated.
Original article published on Money.it Italy 2024-09-25 15:36:52. Original title: Le previsioni OPEC sul petrolio sono sbagliate? Cosa aspettarsi davvero sul prezzo
