Global Oil Market Outlook
Global Oil Market Outlook
GROWTH FACTORS AND CHALLENGES FOR THE OIL MARKET
Global oil price dynamics are subject to many factors, principally the balance of supply and demand, the macroeconomic and geopolitical situation, the dynamics of the US dollar exchange rate and conditions of the global financial markets.
Technological breakthroughs make it possible to develop huge resources. The increase in unconventional oil and gas production in the US serves as a good example. Taking into account the US oil production progress many analytical agencies lower their long-term oil price forecasts.
At the same time a number of trends will support oil prices in the medium term. In this outlook we would like to specify these trends and critically analyze a number of challenges that the oil industry face nowadays.
• Population growth, urbanization
• Motorization in Asia
• Growing costs of exploration and production
• OPEC policy
• Dollar depreciation
• Increase of unconventional oil production in North America
• Increase of oil production in Iraq
• Deepwater shelf production
• Biofuels production growth
• Gas to liquids (GTL) expansion
Fig1. Effective parameters for oil's price
Our planet’s population will continue to grow rapidly. Between 2010 and 2025 global population will grow by more than 1.1 bln people.
The greatest population growth will be registered in developing countries, while in the developed countries population will remain relatively stable.
High rates of population growth are expected, first of all, in India, which will become the world’s most populous country by 2020. Explosive population growth is also forecasted for the African countries where it will be the result of improvement in socio- economic conditions and quality of medical services.
Along with population growth, developing countries will experience the movement of the rural population to the cities, known as urbanization. According to the estimates of Mckinsey Global Institute, by 2025 440 cities in developing countries will contribute up to half of the global GDP growth.
At the same time the levels of consumption will grow. It is expected that by 2025 the size of the urban consumer class will grow by 1 bln people and the overall middle class will amount to more than 50% of the total global population. The main growth will come from developing Asian countries.
Urbanization and growth of the consumer class in developing countries will, in turn, promote demand for real estate, infrastructure, cars, hi-tech goods and, as a result, energy resources.
Fig2. Impact of global population on oil market
Demand for liquid hydrocarbons will continue to grow. Global demand for liquid hydrocarbons will continue to grow annually by 1.2% on average and will, in our estimate, reach 105 mb/d by 2025.
The greatest surge in oil demand will come from the transportation sector, for which oil is the principal energy source (over 90%).
Consumption of liquid hydrocarbons will increase in developing countries where the transportation industry is undergoing rapid growth. Analysts expect to see significant growth in the number of cars as well as the development of sea, air and railway transportation.
In addition to this, growth in demand for oil in developing countries will be further encouraged by the industrial sector, in particular, the petrochemical industry.
At the same time, consumption of liquid hydrocarbons in developed countries will remain relatively stable due to low rates of economic growth and further improvements in fuel economy.
Despite stable growth rates, oil’s share in the global consumption of energy resources will gradually decrease, because of substitution for other energy sources in such sectors as power generation and housing.
Fig3. Forecast for the situation of transportation sector
Motorization in Asian Countries
The motorization of the population in developing countries is one of the principal factors behind the future growth in demand for oil. Today developing countries are severely lagging behind developed nations in terms of the number of cars per 1,000 people, thus creating conditions for
significant growth in the size of global car ownership.
In the forecast period, the most noticeable increase in car ownership will take place in China, whose car market has already entered an intensive growth stage. In today’s China the number of cars per 1,000 people is 40. By 2025 this figure will be close to 200, which will mean an increase of 220 million cars for the period of 2010-2025.
Significant growth in car ownership will also be registered in India and other developing Asian countries. By 2025 large-scale growth of car ownership will begin in Africa.
Freight cars and trucks will make a strong contribution to the growth in consumption of motor fuels. The total number of such cars is expected to grow by 140 mln by 2025.
According to our estimates, the aggregate global car fleet will grow by 670 mln during the period 2010-2025. This will lead to an increase in fuel consumption of 9 mb/d.
Fig4. Forecast for motorization and car fleet growth in certain region
Fuel Economy Improvement
We are currently observing a sustained trend towards decrease of fuel consumption in passenger cars. This is happening for a number of reasons: the designs of car bodies and engines are improving, the quality of engine fuel is getting better and hybrid technologies are being implemented more often.
Growth in the size of the car fleet will be accompanied by changes in its structure. However, over the course of the whole forecast, internal combustion engines will preserve their dominant position. Their share in the total car fleet will amount to more than 80%. At the same time the share of cars with diesel engines will slightly increase.
The decreased rate in fuel consumption over the last 20 years was due to the improvement in its quality. Engines that consume RON-95 gasoline became an industry standard. The further decrease in fuel consumption rate will be evolutionary, not revolutionary.
Promising trends in car improvement, such as the hybrid engines, reduced rolling resistance tires, decreased weight and improved aerodynamics, will help to reduce the consumption of fuel in passenger cars by 30% by 2025.
Fig5. Consumption of fuel by new cars