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BP predicted peak oil demand has already arrived and the next peak will come in 2030.
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Iran is flexing arms to hike its oil output to boost its sagging economy
The outcome of Organization of Petroleum Exporting Countries (OPEC+) and non-members’ meeting on 18 July has been much to the satisfaction of the UAE. The Gulf nation had been insisting not to extend the current cap on production of oil beyond April 2022 and even differed with its ally and neighbor Saudi Arabia in this matter.
The UAE’s stand that the October 2018 baseline production does not hold water in the present circumstances and it was trying to derive the maximum with the oil it had before a dip in the demand for the good.
With oil producing countries promising to reduce carbon emissions to a large extent and need to invest heavily in the clean energy technologies, time has come for these nations to increase oil revenues for few years so that their economic diversifications programmes are not affected.
In this context, a BP study paper in 2018 had predicted that the peak oil demand has already arrived in the worst-case scenario and the next peak will come in 2030.
Norway’s Equinor forecast it will be either in 2027 or 2028, Rystad Energy predicts in five years while the International Energy Agency says only in next decade.
All these studies indicate that the demand will peak around 2030 and big players like the UAE have to act fast to increase and monetise their oil exports as they have invested billions of dollars in the sector.
However, the UAE’s oil production limit fixed by the OPEC+ in 2018 is not a reflection of its full production capacity which rose from 3.17 million barrels per day (MBPD) in that year to over 3.8 MBPD in April 2020, when the oil producers decided to cut oil production 9.7 MBPD due the outbreak of COVID-19.
Iran factor
While recovery in demand is on the cards as economies across the world have opened up, the spread of Delta variant virus is also a cause of concern for the oil producers. The possibility of a third wave in India and other countries in the Europe is also a source of worry to these oil barons that the projected may be impacted in such a scenario.
Another issue is the return of Iran to global oil markets as the US government is planning to remove restrictions on that Persian Gulf nation. Iran, which has revived talks with six countries on its nuclear deal since April 2021, is flexing its arms to hike its oil output to boost its sagging economy.
“If sanctions are lifted, most of the country’s crude production will be restored within a month,” Farokh Alikhani, production manager of the National Iranian Oil Company (NIOC), reportedly told the oil ministry’s SHANA website.
However, market watchers say that even if the nuclear talks succeed, there are other sanctions which prevents Iran from pumping its oil into global markets in the near future. When the sanctions were re-imposed in 2018, Iran was supplying 2.8MBPD from 2MBPD in 2016 when they were lifted.
“The average daily oil production of Iran after the implementation of the 2015 deal was 3.38 MBPD and we plan to return to that level if the sanctions are lifted,” Alikhani said.
Pre-pandemic levels
In its report released in July, the OPEC forecast that oil demand would rise in 2022 to reach a level similar to before the pandemic, led by growth in the US, China and India.
The demand next year would rise by 3.4% to 99.86 MBPD and would cross 100 MBPD in the second half of 2022. Even the International Energy Agency (IEA) too predicted in June that the demand would return to pre-pandemic levels by end of next year.
The OPEC report also said: “Solid expectations exist for global economic growth in 2022 due to containment of COVID-19, particularly in emerging and developing countries, which are forecast to spur oil demand to reach pre-pandemic levels in 2022.”