The latest forecasts from OPEC (Organisation of Petroleum Exporting Countries) have confirmed what we said two weeks ago - that the worst phase for the oil markets and prices is over. OPEC says global oil demand will grow from now on to reach pre-COVID-19 levels, even as early as by the beginning of next year and which will reflect positively on prices.
In its ‘World Oil Outlook 2045’, OPEC predicts global oil demand to rise to 110 million barrels per day (mbpd) compared to 100 mbpd before the pandemic. This means an increase will be modest despite the significant surge in global population, which will reach 9.5 billion by 2045. Plus, it has factored in the contribution of alternative energy sources, which will increase by 10 per cent.
This is logical in view of the marked progress in developing clean and renewable alternative energy sources at more affordable tariffs. However, oil will remain the world’s main source of power compared to all other energy sources.
Dwelling on the optimism
The question here is on what is the basis for this optimism about improvement in oil demand and price stability, especially as OPEC’s forecasts did not touch upon the details. We can try and explain the reasons based on available data.
First, the momentum of economic activity has begun to return gradually after months of complete and painful closures. In fact, most activity has resumed, including in the main oil-consuming sectors such as aviation and public transport, which has led to increased demand and higher prices.
Living with the pandemic
The second factor that has helped accelerate economic recovery is the way countries managed to adapt to the pandemic conditions and trying to reduce the damage to economic activity. This rational approach was absent at the beginning of the pandemic due to the horror that prevailed in societies and the media’s role in spreading and amplifying that fear.
Now, it is clear that the optimum way to deal with it combines economic activity and an adherence to preventive measures, which has encouraged a return to normal life and driving the economic cycle again. The third factor lies in the possibility of developing effective COVID-19 vaccines by the end of this year, which will be reflected in all walks of life, and particularly on the economic.
This will eventually lead economic activity in the fourth quarter of 2021 to roughly reach pre-pandemic levels. What do these anticipated developments mean for oil-producing countries, especially the GCC, which have been subjected to an unprecedented smear campaigns that their economies are on the brink of collapse.
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By examining available data, analysis suggests something otherwise. In general, the GCC economies are on their path to recovery, but with some difficulties that countries that have to produce less oil will suffer. In 2021, Gulf economies will overcome the difficulties and will achieve growth rates of between 2-3 per cent next year after negative rates of 4-5.5 per cent this year.
The annual budget deficit compared to the GDP, which reached a high of 12 per cent in some GCC countries, will drop to 5 per cent in 2021, a rate that can be easily dealt with. This means that the Gulf’s economic growth will be back on track. Then, rumour mongers and creators of biased reports will have to wait for another round of distortion of facts.
- Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.