World oil demand just keeps on rising
OPEC Bulletin Commentary February-March 2014
Things are looking decidedly better. The global economic picture is slowly, but surely, improving. And, in tandem, world oil demand continues to grow.
It is very easy to take these facts for granted. But in the business OPEC is in, they are highly significant facts.
It seems like forever since we were basking in the limelight of strong economic growth. Actually, it is not that long; in the two years preceding the financial crisis in 2008, world GDP growth was comfortably over five per cent. We all know what has happened since then.
But the good news is that the economy appears to be now going in the right direction. As the March edition of the OPEC Monthly Oil Market Report (MOMR) observes: “The assumption that the global economy will see a gradual recovery in 2014, led by growth acceleration in the major OECD economies, remains valid.” OPEC backs this comment with the forecast that last year’s global GDP growth of 2.9 per cent will rise to 3.5 per cent in 2014.
“OECD economies will contribute most of the increase, with growth improving from 1.3 per cent in 2013 to 2.0 per cent in 2014,” it notes. Importantly for OPEC and the oil sector in general, the improving global economy is also resulting in higher oil demand. Of course, many challenges remain, but there is every reason to be optimistic.
One month earlier, the February issue of the MOMR went into more detail about oil demand, reminding us that only twice in the past quarter of a century has annual oil demand not risen. That was in 2008 and 2009, at the time of the financial turmoil.
Going back even further to OPEC’s birth in 1960, we find only six other occasions when annual demand fell — and five of those were in the troubled first half of the 1980s.
This strong positive trend is expected to continue in the future. OPEC’s latest annual World Oil Outlook projects that demand will increase throughout the reference case period up to 2035.
Historically, annual average world oil demand has risen from 21.4 million barrels/day in 1960 to 62.9m, 76.5m and 89.9m b/d in 1980, 2000 and 2013, respectively. It is currently projected to average 91.0m b/d in 2014 and 108.5m b/d in 2035.
Taken together, this means that demand may eventually turn out to have increased by around five times in the space of three-quarters of a century, from 1960 to 2035.
Moreover, it is not enough to note the absolute growth in demand. There is also the frequent need to replace depleted wells and old plant and equipment and to accommodate ever higher standards and tighter regulations.
Clearly, therefore, there will be plenty of challenges facing oil producers for years to come as they seek to meet this continually rising demand.
This is good news for the industry.
But it also underlines the responsibility of the industry to ensure that consumers continue to receive their oil in a timely and orderly manner in the future.
A stable oil market has been a central objective of OPEC since its establishment more than half a century ago. This objective has guided its decisions and actions over the years, ensuring that the market is well supplied with crude oil at fair and reasonable prices. It has benefited producers and consumers alike and supported world economic growth.
However, the achievement of market stability is a shared responsibility among producers, consumers, oil companies, investors and other interested parties. They all benefit from market stability and so they should all contribute to it.
The big advances in dialogue and cooperation in recent years have provided important support for this.
Indeed, it is the recognition of this shared responsibility that lies behind these advances. OPEC has actively encouraged dialogue and cooperation, notably through such multilateral channels as the International Energy Forum, bilateral dialogues with the European Union, Russia and other leading stakeholders, and participation in countless conferences, seminars and other fora aimed at developing and enhancing the industry.
As the World Oil Outlook puts it: “OPEC continues to highly value the importance of a cooperative and coordinated approach to dialogue that is beneficial for market stability in both the short and the long terms, recognizing that security of demand and security of supply are two faces of the same coin.” And this statement takes on added importance when we consider the big increases in world oil demand that are expected in the coming decades.
