Peak-demand has apparently replaced the decade old debate on peak-oil. East and west of Suez we can observe the steep decline in oil-consumption. While China alone accounted for half of global growth in oil demand from 2004 to 2014, the country is now on its way to a consumption led growth. Jet fuel and gasoline will weigh more in the energy mix than diesel. This trend might possibly result in the Chinese oil demand to halve by 2020. Russia supplanted Saudi Arabia in May becoming the top crude supplier to China (again after 2005), using the Renminbi for crude trade.
On the supply side, the battle for market share inside OPEC between Iran and the Arab Gulf states has started, though the lifting of Iran sanctions will not happen before spring 2016 in case the joint action plan of July 14 will be fully implemented. Saudi Arabia is not really willing to make room for Iran, given the Saudi rise in oil production beyond 10 mbpd.
The oil price is in a crucial observation phase for the come-back of Iran, a cease-fire in Libya and Iraqi oil-production heading for a 7 mbpd export capacity by 2020 will bring remarkable volumes of additional conventional oil to an oversupplied market. Is geopolitics at margins in an oil market shaped by tremendous oversupply and falling demand? The low price could eventually provoke internal conflicts in important oil producing countries, which are once more suffering from the notorious Dutch disease. Quick and easy money led to bonanzas from Angola to Russia.
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Investments which have to be shelved due to the low price and high investment costs will probably entail new bottlenecks both in the upstream and the downstream. Rex Tillerson, CEO of Exxon-Mobil, stated during the OPEC Seminar in Vienna in early June: “We have to face uncertainties together”.
Dr. Karin Kneissl
Dr. Karin Kneissl is an independent Middle East and energy analyst and is guest lecturer at Universities in Vienna, Beirut, Cairo and Frankfurt. She is a regular commentator for the Austrian radio and TV broadcaster ORF, whenever political developments in the Middle and the events in the energy market require it. Her articles are widely published in German, English and French quarterlies and monthlies: http://www.kkneissl.com/en
Guest contributions do not necessarily reflect the opinion of the editorial board of e-fundresearch.com