Brent crude oil prices fell below $70 a barrel in early September, marking their lowest level in 33 months. This decline is positive news for consumers, who can expect lower prices at gas stations. However, it poses a significant challenge for OPEC+, the oil-producing alliance led by Saudi Arabia, which relies heavily on oil revenues.
In a bid to stabilize prices, OPEC+ decided to extend its production cuts by two months earlier this month. Despite this effort, the anticipated effect has not materialized. Low global demand forecasts, combined with new oil supplies from non-OPEC nations, suggest that crude prices may remain subdued for an extended period.
This situation has prompted questions in the market about whether we have reached “peak oil.” Are we witnessing the highest point of demand growth, with a decline to follow?
According to OPEC’s own projections, the answer is a resounding no. The organization’s 2024 World Oil Outlook report, released last Tuesday, forecasts a robust global energy demand growth of 24% between now and 2050. It also anticipates oil demand to reach 112.3 million barrels per day by 2029, an increase of 10.1 million barrels per day compared to 2023.
However, many energy analysts, including those at the International Energy Agency (IEA), disagree with OPEC’s optimistic outlook. The IEA’s annual mid-term report, published in June, predicts that oil demand will level off at around 106 million barrels per day by the end of the decade. While the IEA acknowledges a rise in global oil demand, it expects a smaller increase, anticipating that demand will peak by 2030.
The ongoing debate between OPEC and the IEA has intensified in recent years, especially as the IEA advocates for a net-zero future. S&P Global Commodity Insights offers a more moderate perspective, forecasting that demand will peak at 109 million barrels per day in 2034 before gradually declining to below 100 million barrels per day by 2050. In contrast, OPEC predicts demand will surge to 120 million barrels per day by 2050.
All parties agree that demand will decline in developing nations while rising in emerging markets, particularly in India.
Medium-Term Outlook
In the near to medium term, analysts remain pessimistic about oil demand and prices. This skepticism persists despite OPEC+’s early September announcement to extend crude production cuts into December to limit market supply.
Dave Ernsberger, head of market reporting at S&P Global Commodity Insights, told CNBC, “That extra two months hasn’t convinced anyone skeptical about the market that it will significantly shore up prices.” He added that the broader concern is whether we are moving beyond peak oil demand.
Ernsberger highlighted the rise of alternative energy sources, including increasing biofuel usage in the maritime sector. “We are entering an era of post-demand growth. It’s not the end of oil, but it is a moment of stalled demand growth. The question is how OPEC+ and the market will adjust to this new reality.”
The prospect of rising prices is also hindered by China, the world’s largest oil importer, which is pursuing a path toward electrification. “The biggest threats to higher prices for OPEC+ are external,” Li-Chen Sim, a non-resident scholar at the Middle East Institute, told CNBC.
These threats include weak demand from China, increased oil supply from non-OPEC sources, and some member countries producing beyond their assigned quotas. Estimates show a slowdown in demand for oil and refined products in China, attributed in part to a sluggish economic growth rate of 3% to 5% in recent years.
Sim noted, “There is also a structural element to the reduction in oil consumption, driven by efforts to decrease dependence on oil imports, as reflected in policies promoting electric vehicle adoption and the expansion of renewable and nuclear power.”
In the near term, OPEC+ is expected to restore some production in December. However, many member countries are already exceeding their quotas, and additional supply from non-OPEC producers, such as the U.S., Guyana, Brazil, and Canada, is entering the market.
Ernsberger remarked, “It’s difficult to see prices moving much higher as long as there is a threat of increased supply in the market.”
Looking further ahead, analysts argue that any eventual decline in the oil era will stem from changing demand rather than dwindling supply. The late Saudi Sheikh Ahmed Zaki Yamani famously stated in 2000, “The Stone Age came to an end not for a lack of stones, and the Oil Age will end, but not for a lack of oil.”
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