CRUDE OIL PRICES RALLY AS MARKET SEEKS STABILITY 

Brent crude prices jumped nearly 5% in September, as traders began worrying about supply-side issues, especially in Iraq, Iran, Nigeria, and Venezuela, as well as the hurricanes that hit the United States.

December ICE Brent expired at USD 82.72 per barrel on 28 September, ending a strong quarter that saw the prompt North Sea benchmark up 7% from the start of July and 24% since the start of the year.

Demand is the key driver. If world consumption for crude grows this year and the next compared with last year's levels, the market will tighten in the fourth quarter and prices will continue to increase, with WTI reaching as high as USD 80 per barrel this month. Should that occur, the danger is that higher crude prices will stifle demand and the market will rebalance at a lower level early next year.

This possibility has been fuelled by the recent strength of the dollar, which increased oil prices for consumers outside the United States.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) are doing their part. The Joint OPEC-non-OPEC Ministerial Monitoring Committee said that members had achieved a conformity level of 129% in August this year, and 109% in July, which shows reasonable progress towards OPEC’s pledge in June to adjust overall conformity to 100%.

OIL INVESTMENT

There are also concerns that producers have not invested enough in large-scale projects to ensure a steady supply of new oil.

OPEC secretary general Mohammad Sanusi Barkindo, during the 39th Oil & Money Conference in October, touched on the issue that the industry is worried about policies that detrimentally impact oil, with talk of stranded assets and declining values of oil.

“Then we have a potentially dangerous scenario, one that could increase volatility significantly. This is brought home by the scale of the investment requirements. Oil-related investments across the upstream, midstream and downstream are estimated at around USD 11 trillion in the period to 2040,” the secretary general said.

OPEC expects global oil demand to grow at an estimated 1.54 million barrels per day (bpd) this year, to reach 98.79 million bpd, taking into account slower growth in OECD Europe, the Middle East and South America.

In 2019, world oil demand growth is forecast at 1.36 million bpd, down by around 50 thousand barrels per day (tbd) from last month’s projections, mainly reflecting adjustments in the economic projections for Turkey, Brazil and Argentina. As a result, total world oil demand is anticipated to reach 100.15 million bpd.

Oil demand growth is expected to be led by India, followed by China, and OECD America. In 2019, OECD demand is forecast to grow by 0.25 million bpd, while non-OECD countries will drive oil demand growth by adding an estimated 1.11 million bpd.

LONG-TERM GROWTH

While renewable energy is expected to gain market share as an energy source, fossil fuels led by crude oil and natural gas will continue to be a crucial component of the global energy mix over the next few decades, with Middle East oil playing an important role in ensuring supply stability.

A long-term forecast shows OPEC countries will increase their global share to 40 million bpd or 36% of total by 2040, compared to 32 million bpd or 34% this year.

The organisation expects the world’s primary energy demand to expand by a robust 91 million barrels of oil equivalent per day (mboed), or 33%, between 2015 and 2040, rising to 365 mboed.

“This is driven predominantly by developing countries, which see almost 95% of the overall energy demand growth. Most of this will come from Asia, but Africa is expected to play an increasingly important role, too,” according to the forecast.

Oil demand will grow by 14.5 million bpd, or 111.7 million in total by 2040, an increase of 23 million bpd, compared to OPEC’s forecast last year.

While non-OPEC countries will boost production by around 9 million bpd until 2027, their contribution will start to decline amid “losses in US tight oil production, as well as depletion in other regions, such as the Asia-Pacific, North Sea and Latin America.

The OPEC forecast expects natural gas to witness the biggest growth in absolute terms of around 32 mboed, and renewables the largest growth in percentage terms (+7.4% per annum).

“Oil remains the fuel with the highest share of the energy mix over the forecast period, at 28% in 2040,” OPEC said, noting that petrochemicals will lead the demand for crude oil, on the back of rising demand for consumer goods.