The Opec oil cartel has repeated it through the year: as a contribution to the global economy recovery, it was supporting moderate oil prices.
Saudi Arabia put numbers on the cartel’s words, describing the $70-$80 a barrel range as “excellent”.
For sure, Opec’s aim of $70-$80 a barrel – the group avoid talking about a target – has helped the global economy, particularly of poor oil importing countries.
But there are signs that the oil cartel is not as altruistic at it appears at first glance. Opec appears to be as concerned about the global economy as to drive consumers away from oil.It is the clearest recognition yet that high oil prices could damage the cartel’s interest in the long-term by reducing for ever energy demand.
The deliberation came to the light as Opec – it appears that by mistake on the chaos surrounding the meeting in Luanda, Angola’s capital – allowed reporters to remain in the plenary room while the group’s economist told ministers their latest findings. “Crisis appears to have induced a permanent loss in oil demand in OECD and slower rate of growth in non-OECD, due to policy measures and changes in consumer behaviour,” the “concluding remarks” of the presentation read.
The Energy Source blog had in Luanda a still camera at hand – so we took a picture of the power point slide for the record.
For Opec standards, the warning is pretty heavy stuff. In plain language, it means that it acknowledges that governments’ measures to save fossil fuels – a move to biofuels, but also to nuclear, wind, solar and other renewable energy sources – and consumers attitude – read, for example, buying smaller cars or moving into public transport – are hurting, Although the cartel pointed to the generic “crisis” as the reason of the permanent loss in demand, the changes it described – government policy and consumer’s behaviour – are not the result of the financial crisis, but of the oil prices crisis of 2008.
The cartel’s presentation did not say how much oil demand has being loss or destructed, but it is clear from the presentation that the figure has to be large or, on the contrary, the group’s economist will have not highlighted it. The presentation’s warning appears to back the view of some critics of Opec’s policy of high oil prices between 2006 and 2008, when oil prices peaked at $147 a barrel.
Sheik Yamani, the former oil minister from Saudi Arabia, was among them, repeating his famous – albeit cliché nowadays – warning: the age of stone did not end because a shortage of stones, neither the oil age will end because a lack of oil. On the contrary, the sheik argued last year, plenty of oil will be left underground because high prices will drive consumers away for oil, cutting for ever demand. There are examples in the past: demand in Western Europe has yet to recover to the level it reached in the mid-1970s, before the explosion in prices of the second oil crisis. Neither has Japan’s demand surged back to the levels of early 1980s.
Now, it appears that the demand of the US peaked around 2005. The International Energy Agency, the western countries’ oil watchdog, says that its “working assumption remains that a degree of structural demand destruction has occurred, notably in the OECD, which may constrain overall levels of demand growth in future.”
The IEA says that the oil intensity – a measure of how much oil is necessary to consume for each unit of GDP – declined by about 2.2 per cent between 1998-2008 worldwide, but anticipates an acceleration to 3 per cent over 2011-2014.
Opec gloomy on demand destruction (FT Energy Source, 11/11/09)
Do oil sands plus peak demand spell doom for oil majors? (FT Energy Source, 27/07/09)
Peaking oil demand? (FT Energy Source, 20/02/09)