Summary
- Oil demand is not falling but growth has slowed down to its lowest level in over a decade
- China’s oil demand has been falling for 6 continuous months
- OPEC forecasted an increase in oil demand, but it seems the IEA’s forecast was more accurate
- EV sales in China are increasing, reducing gasoline demand
- The future of oil demand could be influenced by factors like political will and the availability of affordable oil
Article
Oil demand is showing signs of cooling, with growth slowing down to its lowest level in over a decade. In 2024, a pivotal year, a schism appeared between the forecasts of the IEA and OPEC, with the former predicting a more realistic growth in demand compared to the latter. China, a key driver of oil demand growth, started to experience a decline in consumption, indicating a structural shift in the market. As EV sales surged in China and other factors questioned traditional narratives, OPEC was forced to postpone planned production increases, signaling a turning point in the oil market.
As China’s oil demand continued to fall for six consecutive months, OPEC and the IEA adjusted their growth forecasts. OPEC remained optimistic about demand growth, while the IEA lowered its estimates to reflect the changing landscape. The scenario of a world with abundant oil suggests that continued demand growth, coupled with a surplus of supply, could lead to lower oil prices, impacting the transition to clean technologies. However, the abundance of cheap oil could also promote its consumption in less developed economies and delay the transition to cleaner alternatives.
In contrast, a scenario with scarce oil reserves could lead to falling prices initially due to oversupply, but as investment decreases and more expensive fields struggle, prices may become unstable and fluctuate. This instability could drive investment in clean technologies to reduce dependency on oil. The continued electrification of transport and renewable energy generation is decoupling oil demand from economic growth, particularly driven by the increasing adoption of EVs. OPEC and Big Oil’s hopes for higher energy demand in developing economies may prove futile as the shift towards clean technologies continues.
The impact of policies by the newly elected US president, regional oil discoveries, and technological advancements will also influence the future of oil demand. While the US may prioritize fossil fuels in the short term, the trend towards cleaner alternatives is evident globally. The future of oil demand hinges on various factors, including technological innovations, market dynamics, and political will to combat climate change. As the transition to clean technologies accelerates, the future of oil demand remains uncertain, with implications for the energy sector and global economy.
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