Slowing of oil production leads experts to predict peak oil demands

Demand is unlikely to fall sharply once oil peaks, the OIES said. (Shutterstock)
Updated 10 December 2018

Slowing of oil production leads experts to predict peak oil demands

LONDON: The prospect that global oil demand will gradually slow and eventually peak has created a cottage industry of executives and commentators trying to predict the point at which demand will peak. 

But in a new report from the Oxford Institute of Energy Studies, seen by Arab News, the organization argues that this focus seems misplaced.  

“The date at which oil demand will stop growing is highly uncertain and small changes in assumptions can lead to vastly different estimates,” it suggested.  

More importantly, said the OIES, there is little reason to believe that once it does peak, oil demand will fall sharply. 

 

“The world is likely to demand large quantities of oil for many decades to come. Rather, the significance of peak oil is that it signals a shift in paradigm — from an age of (perceived) scarcity to an age of abundance — and with it is likely to herald a shift to a more competitive market environment.”  

This change in paradigm is expected to pose material challenges for oil-producing economies as they try both to ensure that their oil is produced and consumed, and at the same time diversify their economies.”

OIES said: “It seems likely that many low-cost producers will delay the pace at which they adopt a more competitive “higher volume, lower price” strategy until they reduce the “social costs” of oil production associated with using oil revenues to finance many other aspects of their economy, such as health-care provision or public-sector employment. 

OIES added that it was unlikely that oil prices would stabilize around a level in which many of the world’s major oil-producing economies were running large and persistent fiscal deficits.  

“As such, the average level of oil prices over the next few decades is likely to depend more on developments in the social cost of production across the major oil producing economies than on the physical cost of extraction,” said the OIES paper.

Decoder

Peak oil

This is the point, in theory, at which the maximum rate of crude extraction is reached and then goes into terminal decline.


Saudi Arabia PIF’s $40bn boost aimed at post-pandemic profit

Updated 33 min 19 sec ago

Saudi Arabia PIF’s $40bn boost aimed at post-pandemic profit

  • Since the COVID-19 crisis began, the PIF has spent $7.7 billion amassing a portfolio

DUBAI: The Public Investment Fund (PIF), Saudi Arabia’s ambitious sovereign wealth fund, is seeking to use the extra $40 billion it was recently granted from government reserves to benefit the Kingdom and its citizens when the current coronavirus disease (COVID-19) pandemic is over.

A spokesperson for the PIF said that the injection from reserves held by the Saudi Arabian Monetary Authority — announced last week — “allow us to tap into a number of local and global investment opportunities at attractive prices. This includes investments in sectors that are well positioned to drive economic growth and value creation and derive benefits for the citizens of our country well beyond the current crisis.”

Since the COVID-19 crisis began, the PIF has spent $7.7 billion amassing a portfolio of shake stakes in some of the best-known corporate brand names in the world, including Boeing, Disney, Facebook and Marriott International. It also took big holdings in independent oil companies Shell, Total and BP, as well as banking giants like Citigroup and Bank of America.

The shares of these and other investments in the PIF spending spree had been affected by the dramatic downturn in the US stock market after the first pandemic related lockdowns. They have since recovered almost to all-time highs as US authorities took emergency measures to support its financial institutions.

Some investors are calculating that there will be a rapid economic recovery when the lockdowns end, to send stock markets soaring again.

“The PIF’s role is to invest the nation’s wealth in a way that generates long-term attractive returns and a diversified source of wealth for the Saudi people. The uncertainty caused by COVID-19, and the subsequent drop in global oil prices, highlights why our economic diversification efforts are so important. Capital injections from the government are an established source of funding for the PIF, as outlined in our strategy as part of our Vision Realization Program,” the PIF spokesman said.

The fresh resources for the fund, which has $320 billion of assets under management, will provide extra firepower to take advantage of perceived bargains. Yasir Al-Rumayyan, governor of the PIF, said last month: “You don’t want to waste a crisis. We’re looking into any opportunities.”