Oil prices tumble, demand rises

Oil prices tumble, demand rises
Published: 09 February 2016


As the oil market is supplied with considerable volumes from US shale oil to ramped up production in Saudi Arabia and Iraq, oil prices have tumbled in the past six months. On the back of price falls, demand for oil has increased.

Real Brent crude oil prices are hitting bottom prices since decades and the share of energy consumption as percentage of global GDP is 2.6 per cent, a level not seen since the late 1990s. Demand has jumped to 1.7mbd in 2015 and the current oil prices are expected to drive further gains in consumption going forward.

“If oil averages US$55 to US$75/bbl, we estimate global oil demand will increase over five years by 5.9mb/d, as consumers no longer rush to buy smaller and more fuel efficient cars and consumption speeds up in Asia,” says Bank of America Merrill Lynch (BofAML) in its “Global Energy Paper”.

BofAML predicts three significant risks. Over the next five years, the Saudi forecast production remains uncertain while weaker OPEC members are seeing their credit profiles rapidly fall, putting output sustainability at risk. Secondly, oil consumption may not sustain its current climb as it responds to falling oil prices and a strong US dollar. Finally, the global cost curve may be impacted by technology changes.