Why oil demand could peak by 2024…

A recent report by Goldman Sachs has estimated that oil could touch peak demand by 2024. That is not great news for the billions of dollars that are currently being invested in prospecting and extracting new sources of oil. The US has virtually spurred a shale boom supported by low interest rates and better directional drilling technology. So, why exactly is the investment bank expecting peak oil demand by 2024? There are 3 broad reasons …

Cartelization could emerge…

Even though crude oil prices may not get back to the peak levels of 2014 in a hurry, there is always the threat of peak oil demand. That worry will force most oil extractors to make the best of the oil reserves while the party still lasts. Currently, the crude oil prices are hovering in the range of $45-$50/bbl. However, this is more because the OPEC is gradually losing out on its bargaining power as it accounts for just about 35% of the world oil production. But if oil was to have a shorter life span, then even the US and Canada will look to make the most in terms of oil prices. Even if the prices eventually settle at around the $60-$70/bbl mark, the US and other oil producing economies stand to benefit immensely. It is therefore not entirely inconceivable that the US may also cooperate with the OPEC to restrict supply to have a better control over oil prices. Higher crude prices will depress global demand in a big way!

Weak global growth…

Estimates of growth coming from most of the key global research organizations are estimating sub-par growth from most of the large economies due to fundamental challenges. The US will find it hard to get back growth unless the tax cuts and infrastructure spending actually happens. China will continue to reel under the pressure of its huge debt and its parallel shadow banking system. While UK will struggle with the aftermath of BREXIT, both Europe and Japan may, at best, flatter to deceive in terms of growth. The big challenge for oil in the coming years will be insufficiency of demand and that will come from more environmental caution as well as efficient cars.

Actually, it is about electric cars!

The big game changer for the oil industry could be the mass production of electric cars. Thanks to Tesla, the demand for electric cars is at a tipping point. The demand for electric cars is expected to grow 40-fold in the next decade and that will contribute largely to the reduction of demand for fuel. Cars continue to be the biggest consumers of fossil fuels and this shift will actually lead to oil demand peaking. The mass production and demand for electric cars has already started and if the trend catches on, we may see the peak much earlier. The news is not good on the crude oil front!

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