Every year dozens of forecasts are published that date the beginning of the end of oil. The powerful emergence of the electric car, the improvements in the efficiency of combustion engines or the lower use of hydrocarbons in the industries of developed countries have led to talk of this decade as the last in which the global oil demand. However, there are so many factors that can influence crude oil consumption over a period of years, that the ‘bets’ are varied and all seem to have logic and foundation. One of the latest has been that of Goldman Sachs which, compared to the consensus set by the International Energy Agency, believes that the demand for crude oil will continue to grow for a few more years. This will be the last dance between oil and the economy.
Beyond the cyclical movements in oil caused by temporary alterations in demand (which moves to the rhythm of the economy) and supply (according to OPEC cuts and production in America), the price of crude oil can also be analyzed in the long term. The long-term scenario that is presented as most likely to investors and international organizations speaks of global oil demand that begins to fall at the end of this decade. The International Energy Agency (IEA) dares to establish a concrete exercise to mark the beginning of the end of crude oil demand: 2030 is that ‘magical’ year. In its base scenario, the IEA assumes that all governments meet their energy and climate commitments in full, predicting that global oil demand will peak in 2030. From then on it will be all declines for global crude oil consumption.
Goldman Sachs and the last dance of oil
However, Goldman Sachs economists They believe that a key factor is being ignored. Everyone focuses on the electric car, on energy efficiency… but few look at what is happening in the global economy. A good part of the world’s population is close to entering a phase of economic development, generating a kind of ‘sweet spot’ for crude oil consumption. This point is the moment at which the income level is exceeded that allows consumers to start traveling, taking planes, buying a car and doing other leisure activities that They are fed with crude oil derivatives. A good example is India, some 1.5 billion inhabitants who will reach the ‘sweet spot’ in the coming years.
“Although the impact of electric cars on gasoline demand has received a lot of attention, less attention has been paid to the fact that The global average GDP per capita is approaching a sweet spot or optimal point “Over the next few years, every dollar of increased income will likely generate an increasing amount of gasoline demand,” Goldman Sachs economists say.
When viewed from a long-term perspective, oil demand growth shows a non-linear relationship with per capita income growth. That is to say, higher per capita income (wealth or development) does not always generate a proportionally greater consumption of fuel. For example, each euro that increases income in a highly developed country hardly increases oil consumption, sometimes it even reduces it. However, in developing countries, each extra euro of income does sharply increase fuel demand.
For this reason, Goldman Sachs economists assure that oil consumption has a relationship with income that can be represented through an ‘S-shaped curve’. This curve presents a growth pattern in which oil demand increases slowly in economies with very low per capita income (Africa, for example), to later enter a phase of positive acceleration, which increases rapidly, approaching a rate exponential growth, as happens in the ‘J’-shaped curve; but which then decreases in a phase of negative acceleration until demand stabilizes with a zero growth rate and even ends up decreasing (the final peak of the ‘S’).
In a more graphic way and with examples. The beginning of the ‘S’ can be explained as follows: in a very poor country, for example, South Sudan, economic growth can translate into an improvement in food, clothing, housing… This growth generates a very low increase in the demand for hydrocarbons. However, demand for crude oil accelerates as incomes increase and reach a medium-low level, as for example happened in China in the late 1990s and 2000s, or as is happening now in India. During this increase, the ‘S’ takes off upwards, before decelerating towards a saturation point, which is the end of the ‘S’, which is reached when the economy already reaches a high point of development, explains the report. from Goldman Sachs.
“Global economic growth is slowly moving the world’s population up the consumer spending ladder: consumption patterns evolve as individuals move from lower to higher income levels, thus driving a growing demand for oil to some extent… Looking across regions, emerging markets in Asia are likely to drive most of the global oil demand growth in our forecast,” Goldman Sachs said.
India and China devour oil
“We anticipate that China will contribute positively to global oil demand until it peaks in the late 2020s. In the case of India, although our motor specialist team expects rapid electrification of two-wheeled vehicles from India (accounting for more than 50% of India’s gasoline consumption), as well as automobiles, strong expansion of India’s passenger vehicle fleet will offset the impactwhich would lead to continued growth in India’s transportation fuel demand throughout the forecast,” these experts explain.
With all this data, Goldman economists draw the big conclusion: there is still a whole decade before peak oil demand is reached. We raise our demand forecast for 20230 to 108.5 million barrels per day. We believe that peak demand oil will not arrive until 2034. Not only will it arrive later, demand will also stagnate at maximum levels (110 million barrels per day) until 2040, at which point it will begin to fall little by little.
Our view for oil is more optimistic than that of the IEA, which predicts that oil demand will peak before 2030. If we also “include a scenario of slow adoption of electric vehicles, given the recent stagnation of sales of electric vehicles, this would imply that the demand for oil would continue to increase until approximately 2040reaching a ceiling of 113 million barrels per day.
