Sat, Dec 21, 2024 | Jumada al-Aakhirah 20, 1446 | DXB 0°C

Opec rejects IEA forecast, sees oil demand’s continuous surge

Opec recently said that world oil demand will rise by 2.25 million barrels per day in 2024

Published: Wed 31 Jul 2024, 5:24 PM

By
Issac John

Oil will continue to be a vital component of future energy pathways and this is exemplified by the fact petroleum products are essential for the functioning of other sectors, according to Haitham Al Ghais, Opec secretary-general.

Al Ghais was reacting to projections made by the International Energy Agency that global oil demand will continue to decline, driven by rapid electric vehicle adoption.

The Opec chief said that member countries of the oil producers alliance have clear national electrification plans, which are crucial to reducing emissions.

According to Al Ghais, the expansion of electricity grids can only be materialised with the help of petroleum-derived products.

He said that underground electric cables need insulation sheaths, which are made of petroleum-derived materials. Meanwhile, transformers — a vital device in electricity transmission — also need oil to function.

Al Ghais said calls to halt new investments in oil projects will jeopardise the production of oil products essential for the smooth functioning and expansion of the electricity grid.

Opec recently said that world oil demand will rise by 2.25 million barrels per day in 2024 and 1.85 million bpd in 2025.

In its latest monthly report released in July, Opec said that total world oil demand will reach 104.5 million bpd in 2024, driven by markets like China, the Middle East, India, and Latin America.

The alliance indicated that the rising demand will be driven by industrial, construction and agricultural activities in non-Organization for Economic Co-operation and Development countries.

Energy market analysts, however, have different views on the price-demand scenario. They believe crude oil prices have been tightly range-bound for about a year now, with bearish and bullish factors largely balancing each other out. But one Wall Street major believes the market is nearing a breakout point. The only question is whether the breakout will be a bearish or a bullish one.

Bank of America analysts believe that oil, which has been experiencing growing pressure, would dive all the way to the $60s by the end of the year, meaning that negative expectations would trump any positive developments. This suggests that the focus on China will likely remain strong, with other fundamental factors taking the backseat, such as the state of world oil reserves.

They have also allowed for such a development, saying that if Brent can top $89 per barrel, it could go to $105 per barrel by the end of the year. That would probably take a major escalation in the Middle East or a slump in U.S. shale output.

Rystad Energy recently reported that the world’s recoverable reserves were lower than official reports showed, which should have sounded a bullish note for oil but did not because of the more abstract nature of total reserves as opposed to everyday output and demand trends. The energy research outlet calculated the total at 1.5 trillion barrels, which was down by some 52 billion barrels from last year’s calculations. Rystad attributed the decline to a year’s worth of production since 2023 and downward adjustments of resources.

Based on that total, Rystad forecast that oil production could peak at around $120 million barrels daily in 2035 and then decline to 85 million barrels daily by 2050. Yet that was in a “high case” scenario seeking oil demand as strong as it is now—which is not the scenario Rystad itself likes best. The company would much prefer a scenario where the electrification of transport reduces oil demand—because the available reserves are insufficient to support much higher demand