Oil prices are over 50% lower than they were last summer — and it’s going to stay that way until the end of the decade.
Fatih Birol, the executive director of the International Energy Agency told the Financial Times that a perfect storm will keep prices low until 2020 — low demand and bountiful supply.
The price of crude oil is around $US44 per barrel. Last summer, it was around $US115 per barrel. The IEA predicts that oil prices will not rise to $US80 per barrel for at least four years.
This is because demand is expected to only grow by 1% by 2020 and by only 5% over the next 20 years. In tandem, oil supply is expected to be excessive and therefore will not fully consumed, leaving a glut in the market.
“We are approaching the end of the single largest demand growth story in energy history,” said Birol to the FT. “Demand is not as strong as we have seen in the past as a result of efficiency [and climate] policies [globally].”
Birol, who has spent 20 years at the IEA, pointed out that China is largely to blame for the lack of demand — but not because of the slowdown in its economy necessarily.
China was largely the reason for a surge in oil consumption over the last 15 years, alongside the growth of other emerging market economies. However, as the country moves towards becoming a more consumer led economy, the lower demand for oil is hitting world demand.
Meanwhile, the OPEC oil-producing cartel, of which Saudi Arabia is a key member, decided against cutting production targets last year, letting the price fall from around $US100 to less than $US50.
The country has pretty much said that it doesn’t care about how low oil is ravaging the markets because it has a policy of pumping so much oil that prices stay too low for competitors to make a profit has led to losses at big oil companies, suppressed inflation globally, and even seen Saudi Arabia’s own sovereign debt downgraded.
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