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Long Story Short: Declining Oil Demand Expected to Continue Into 2020
Will the Oil Slowdown Provoke a Renewable Energy Takeover?
The Organization of the Petroleum Exporting Countries cut its demand forecast for the second consecutive month on Wednesday. The OPEC reduced the expected use for the remainder of the year to 1.02 million barrels per day, which is down 80,000 b/d from the August estimate. This decrease is attributed to the weaker-than-expected economic data in the first half of the year.
Price Gains. Oil prices rose on Wednesday, resulting from another drop-in oil output. Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman, said the oil policy will not change and the production cuts will remain in place. This announcement sent Brent crude up to around $63.09 a barrel, a 1.1 % increase from earlier in the week. This month oil prices have risen more than 7%, supported by falling inventories and easing trade tensions between the United States and China. Investors in crude also saw gains this week. The largest Oil ETF, SPDR S&P Oil & Gas Exploration & Production (XOP), was up 2.45% on Wednesday.
Transition to Renewable. Renewable energy is expected to gain popularity faster than previously thought, resulting from the continued decline of oil demand. The cost of renewable energy technology has declined, ramping up the transition. Electrification can completely alter the way energy is produced and consumed. Renewables are now expected to exceed fossil fuels by 2025, and half of new global car sales will be electric by 2032. Investors have had to be patient, as the change to renewable has not happened as quickly as some had hoped, but they can expect to see continued progress.
Demand Concerns. Oil demand for 2020 is now also expected to be 1.08 million b/d, representing a downward adjustment of 60,000 barrels. This adjustment is not the first this year, and the OPEC indicated that the market will be in surplus. The member countries are planning to meet in Abu Dhabi today to discuss further production cuts and plan for slowing 2020 demand.
Change Can Be Good. Although oil demand has dropped again, the market is still seeing gains. The OPEC members are working together to slow production in an attempt to keep prices up. Some worry about consumption in 2020, but the renewables market is hoping to step in and fill the energy gap.
https://www.reuters.com/article/us-global-oil/oil-prices-gain-after-us-inventories-fall-idUSKCN1VW03N, Ron Bousso, September 10, 2019
https://www.cnbc.com/2019/09/11/opec-downgrades-forecast-for-oil-demand-growth-in-2019-and-2020.html, Sam Meredith, September 11, 2019