Oil continue to rise towards $83 a barrel by mid-2020 – Oil dollars 83 barrel 2020 - Arhive

 Oil price should continue to rise towards $83 a barrel by the mid-2020s as global oil demand is poised to fall only modestly alongside the expected rise in electric vehicles over the next two decades, the International Energy Agency, or IEA, said on Tuesday.

The Paris-based IEA argued that with consumption in petrochemicals and other transportation still growing, the drop in oil demand would be at a modest pace.

“Oil is already facing stiff competition from ever-cheaper and more environmentally friendly energy sources as traditional fossil fuel users switch to cleaner, low-carbon alternatives,” IEA said in its World Energy Outlook 2018.

IEA said it had cut its longer-term oil price projections from last year, partly because of the falling cost of both renewable and conventional sources of energy, the worldwide push to tackle climate change and improve air quality and the boom in US shale oil and gas output.

Under its “New Policies Scenario”, based on existing legislation and announced policy intentions relative to emissions and climate change, the oil price should continue to rise towards $83 a barrel by the mid-2020s.

“The oil market should be able to find a longer-term equilibrium, with the oil price in a range of $50-70 a barrel,” the agency said.

Echoing the forecast by IEA, the Organisation of the Petroleum Exporting Countries said after long years of punishingly low oil prices, there is “increasing evidence” that the oil market is moving closer to reaching a healthy balance between supply and demand.

Opec said in the latest edition of the World Oil Outlook forecasts that oil would supply just over 27 per cent of worldwide energy needs in 2040, while natural gas will see its share at slightly more than 25 per cent.

“The scenario would see demand grow from 95.4 million barrels per day, in 2016, to reach 111.1 million barrels per day by 2040, with the global economy growing by an average of 3.5 per cent per year during that time. Meeting this demand would require an overall investment of around $10.5 trillion across upstream, midstream and downstream operations” Opec Secretary-General, Mohammad Barkindo, said noting that the 2017 outlook was more positive than last year, partly thanks to oil exporting nations’ efforts to stabilise the market.

In Abu Dhabi on Monday, the UAE Minister of Energy and Industry Suhail bin Mohammed Faraj Faris Al Mazrouei, said that oil producers were expected to unanimously extend a production cut accord later this month, but its duration was still under discussion.

“I think this group of committed and responsible producers came together… and I think they will continue to do what it takes to take us to the next level,” he said at an international oil conference.

Oil prices have risen in recent months, after both Opec and non-Opec countries struck a landmark deal at the end of last year to cut back production to combat a global oil glut.

After hitting a 10-year low of less than $30 in January, down from a peak of more than $100 in mid-2014, oil prices have recently been hovering around the $55 mark.

The IEA estimates that there will be 50 million electric vehicles (EVs) on the road by 2025 and 300 million by 2040, from closer to 2 million now. However, this is expected to cut only 2.5 million barrels per day (bpd), or about two per cent, off global oil demand by that time.

“It’s quite spectacular, because you’re going to see the number of cars on the road double from one billion to 2 billion, thanks to electric vehicles and fuel economy standards,” said Laura Cozzi, head of the Energy Demand Outlook division.

A study by Bank of America Merrill Lynch forecasts that pure electric vehicles would achieve a global penetration of 12 per cent in 2025, 34 per cent by 2030 and 90 per cent by 2050.

Christopher Kuplen, BofAML’s Research Analyst, argues that since 55 per cent of global oil is consumed in transportation, of which more than half by passenger vehicles, the demand for oil would eventually fall.

Some analysts even predict that with oil demand declining as EVs set to replace conventional fuel vehicles, oil price could plunge to as low as $10 a barrel over the next six to eight years.

Chris Watling, CEO and chief market strategist at Longview Economics, was quoted as saying that the adoption of EVs could lead to global peak oil demand as soon as 2023, which will result in oil prices crashing to $10.

Between 2017 and 2040 the IEA estimates that more solar power capacity will be added globally each year than any other source of energy, with an annual average increase of nearly 70 gigawatts.

– issacjohn@khaleejtimes.com

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