Scheitrum, Daniel, Lewis Fulton, Amy Myers Jaffe (2016) Changing Oil Market Fundamentals and the Implications for OPEC Production Strategy. IAEE Energy Forum (Bergen Special Issue 2016), 15 - 16
Since the industrial revolution, oil has been key to economic growth and human mobility. Roughly a third of the world’s total primary energy consumption is met by oil, with natural gas taking up a further 21%. Prevailing oil demand projections indicate a strong source of growth in oil consumption will arise from the transportation sector as the multitudes of the world’s poor move into the middle class in the coming decades.
Still, in recent years, there have been two dramatic changes impacting oil markets. First, recent evidence from the slowing of many of the BRICS economies and now sluggish growth in China is raising questions about the longer term trajectory for global oil demand. Oil use has already peaked in the OECD through efficiency improvements and government regulation. The question is whether that trend line is soon to spread to major developing economies as well as technological advances and automation proliferate more rapidly than expected across the globe. At the same time, the world is also experiencing a structural shift in the oil production industry. New technologies and techniques have led to an increase in recoverable production of oil from shale and source rock, particularly in the non-OPEC regions.
We examine projected global oil demand sensitivity to slower economic growth in the developing world in addition to other important trends including wider adoption of improved logistics and shipping through big data, ridesharing-induced reductions in travel, congestion in high population regions, and advances in vehicle efficiency, among other factors. There are many oil scenario projections which evaluate oil demand under various policy environments as well as projections that set emissions or fuel use targets and solve for the requisite future fuel consumption to satisfy such targets. By contrast, we are evaluating various non-policy-driven states of the world which may result in reduced oil demand to analyze the sensitivity of oil demand to another dimension of consumption uncertainty.