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Page added on December 29, 2020

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Is the demand for oil finally sagging?

Is the demand for oil finally sagging? thumbnail

Gulf states fear for revenue. A theory of possible “peak oil” has been around for a long time. The pandemic could now mark the beginning of a steadily falling demand.

It was a thankless task when a team led by US geologist Max Steineke began their search for oil in the barren desert of Saudi Arabia in the 1930s. The sandy plateaus and dry valleys gave hardly any evidence of underground structures, and drilling rigs were not yet known on the Arabian Peninsula. “No oil, no water,” cabled the explorers known as “wildcatters” to San Francisco in 1937 when they were drilling in the UK for a US company.

Patience should be rewarded: On March 4, 1938, oil gushed from spring 7 in the Saudi fishing village of Dammam. Over the next almost 50 years, the “source of wealth” should produce 32 million barrels. Finds of the valuable raw material in Iraq (1927), Bahrain (1932) and Kuwait (1938) transformed an area of ​​often poor and poorly organized tribes into some of the richest states in the world.

Permanent effects

But 2020 could mark the beginning of the end for oil prosperity. As the first industry giant, the BP group declared the age of rising oil demand to be over in September and predicted that consumption might never reach the level before the start of the corona crisis. The pandemic could have “lasting effects” on demand, wrote the World Bank in its outlook for the raw materials market in October.

The industry has been discussing scenarios for so-called “peak oil” – the point in time when global oil production peaks, after which, according to the theory, things continue to decline – the industry has been discussing since the 1950s. In the meantime, the debate no longer revolves around exhausted reserves and the production maximum, but rather the one day falling demand. The International Monetary Fund (IMF) predicted in February – before Corona – that this point in time would be reached “or much sooner” in 2040. A “strong and persistent downward trend” in demand can be assumed. Another reason is the slower growing world population.

Stricter climate protection laws increase pressure on states

There are also stricter climate protection laws and rising CO2 taxes. With the 2015 Paris Agreement on Climate Change, the pressure on states to buy and burn less oil has increased. In Germany, for example, oil heating systems should only be allowed to be installed in exceptional cases from 2026. The German market for electric cars is growing, also thanks to the popular purchase bonuses for electric vehicles. The USA and China have by far the largest oil consumption.

Critics of the “peak oil” theory, on the other hand, argue that predictions on the oil market were often pitifully off the mark. Reliable forecasts for car and air traffic as well as work in the home office after Corona are difficult or even impossible. But the list of analysts predicting an oil spike in the next 15 years is growing, according to a report by financial agency Bloomberg. These include the Norwegian oil company Equinor (2027/28), the French company Total (2030) and the management consultancy McKinsey (2033). The Organization of Petroleum Exporting Countries (OPEC) speaks of the year 2040.

Until then, the states on the Gulf, which account for a fifth of global oil production, will not – or cannot – wait any longer. The IMF warns that your assets could be used up in 15 years’ time with the impending development, and speaks of a “considerable challenge” with regard to their budget. For golf countries with small populations such as Kuwait, Qatar and the United Arab Emirates, the threat seems less existential. It could be more difficult for Oman and Bahrain, with their smaller oil reserves, and for export world champion Saudi Arabia, where 34 million people live.

Gulf states are already rethinking

Saudi Arabia, where oil makes up almost 70 percent of state revenue, is already aggressively pushing ahead with economic restructuring. One of the funds is the sovereign wealth fund PIF, which has bought large shares in Facebook, Disney, the aircraft manufacturer Boeing, Bank of America and the financial group Citigroup. At the same time, Riyadh wants to expand the mining, logistics and energy sectors, the latter by investing billions in natural gas, and thus creating jobs for the young population.

In the raw materials superpower Russia – the second largest oil exporter after Saudi Arabia – the state budget is still around 30 percent dependent on petrodollars. But the country is beginning to get rid of the “needle” of the oil and gas business, says Kremlin chief Vladimir Putin. There is therefore no longer any reason to denigrate Russia as a “gas pump”. Nevertheless, the dependency on raw material income is still high.

Dependence on oil glaring

The current budget is based on an oil price of around 42 US dollars (34.3 euros) per barrel. If this value falls – as it did this year – income falls. The country lost billions as a result of lower demand and the reduction in production. This has exacerbated the economic crisis that began before the corona pandemic. Between January and September, revenues from the oil and gas business fell by 35.9 percent compared to the same period in the previous year, according to the Court of Auditors in Moscow.

Venezuela, one of the countries with the largest oil reserves, gets 95 percent of its foreign exchange from oil exports. Due to mismanagement and tough sanctions by the USA, among other things, extraction and processing have almost come to a standstill. The once prosperous country was the driving force behind the founding of OPEC and helped Arab countries take control of their oil wealth. Today Venezuela suffers from power outages, long lines for gasoline and protests against supply shortages. Venezuela’s economy could also threaten economic collapse with “peak oil”.

de24



3 Comments on "Is the demand for oil finally sagging?"

  1. Yoda in da swamp on Thu, 7th Jan 2021 9:18 am 

    Addicts we all are now and mostly we be in denial!
    Yes we are! Uhhh hmmm

  2. Darth Vader of the Exxon Valdez on Thu, 7th Jan 2021 9:19 am 

    Join me on the dark side Yoda !,and together we can rule the galaxy!

  3. Liquid covid sharts man 2021! Code red! Watch out! on Thu, 7th Jan 2021 9:20 am 

    Covid sharts are here!

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