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OPEC Sees Peak Oil Demand In Just Over A Decade

OPEC is hedging its bets regarding peak oil demand, and has included a scenario in its plans that account for it arriving in just over a decade, should the Paris climate agreement targets be fully implemented.

“In particular, possible climate policies following COP21 have the potential to reduce energy consumption levels and alter the energy mix substantially,” according to OPEC’s World Oil Outlook released on Tuesday.

The cartel is not the first to argue that oil demand may be soon nearing its peak, but when coming from the 14-member organization that supplies a huge chunk of the world’s total oil supply, some may view the comment with more weight than analyst or company insights, or environmentally friendly groups who likely dream at night about peak oil demand coming even sooner than most would expect.

And while environmental groups may take OPEC’s statement as a confirmation that the cartel is acknowledging the threat oil may pose to the environment and resignation, even that oil may be on its way out the door, it’s important to point out that this particular forecast for peak oil demand is one of few, and is considered but a Plan B.

Plan A, on the other hand, is a much rosier scenario, and assumes that countries will be slower to adopt emissions regulations. This plan sees oil demand rising until 2040, and sees an increase in global oil demand in 2017 driven largely by the low oil prices that are sure to make it difficult for countries to not select it as the fuel of choice, and may make it tough to warrant investments in alternative energy infrastructure.



Source: OPEC 2016 World Oil Outlook

To keep up with the anticipated demand in Plan A, OPEC’s outlook sees a need for $10 trillion in investments between now and 2040. “It is vital that the industry ensures that a lack of investments today does not lead to a shortage of supply in the future,” reads the report.

Still, the fact that OPEC is even considering the possibility that oil demand could peak in 13 years will cause many a pursed lip within the industry, which is clinging to life within the current price environment.

And if OPEC’s World Oil Outlook didn’t proffer enough doom and gloom prophesizing for an already shaky market, OPEC Secretary-General Mohammed Barkindo fanned the flames again today, warning of the utter chaos that lies ahead, should OPEC fail to curb production.

According to the OPEC chief, any failure by OPEC to make good on the deal it reached in Algiers in September will have “negative consequences to the already fragile state of the industry,” according to OPEC Secretary-General Mohammed Barkindo on Tuesday. This statement is despite the fact that OPEC, according to its report, anticipates an increase in demand in 2017.

Related: The Pen Is Mightier Than The Pump: The Danger Of Shorting An OPEC Deal

Barkindo went on to say that the markets were “eagerly awaiting” any action from the cartel.

And while some entities may indeed be eagerly awaiting such action, most notably Venezuela, Angola (who’s state-run firm can’t even supply its washrooms with toilet paper), along with some other seriously troubled economies that were brought to new lows by the falling price of oil in 2015 and 2016, at least some market players are no doubt enjoying the profits made off the rising and falling oil prices, which continue to swing as much as 3 percent on any given day, especially on days when:

1) OPEC officials or member states reaffirm any commitment to the cap deal;
2) When OPEC member states, such as Iraq or Iran, steadfastly oppose taking part in any freeze or cut;
3) When the API on Tuesdays reports a large US crude stockpile draw or gain, whether expected or unexpected;
4) When the EIA on Wednesdays report on the same crude stockpile draw or gain;
5) When any production figures, from within OPEC or without, are released, giving the perception that the glut is being added to or taken from;
6) When heated US elections worry the markets in general.

Later today, we may need to add a number 7 to the list of market shakers: OPEC’s acceptance of even the notion that peak oil demand could arrive within 13 years.

Barkindo stressed that although he didn’t want to sound like a “prophet of doom”, should OPEC fail to bring the deal to life, it would “further elongate this period of very low growth, this period of instability in the market, and will put forward, further, the rebalancing process.” And while a prolongation of lower oil prices may indeed further strain the industry, traders and investors may relish the opportunity today’s market affords.

By Julianne Geiger for Oilprice.com

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