Reckoning With New Demand Centers for Oil

When it comes to oil and business, much of the conversation is about the supply side. Since at least the 1970s, everyone has been keenly aware of OPEC and its influence on the available supply of oil. OPEC has been known to artificially restrict supplies of oil, in order to keep prices high in the marketplace. This led to “shortages” in the 1970s that strained the citizens of the US and other countries.

In recent years, though, the picture with oil has changed a great deal. Firstly, the sources for oil globally have changed. The US, Canada, Norway, Mexico and other countries are big players when it comes to exports. Brazil in particular is beginning to extract large quantities of oil, and that will have real impacts on prices globally.
The 14 member countries in the OPEC cartel can still influence global prices for oil, but they no longer have the stranglehold on the marketplace that they once did. So it’s only logical that the supply-side conversation about oil needs to evolve to match current circumstances.

However, the more important conversation about oil may actually be on the demand side. Demand for oil is receding in the developed world, at least in theory, as those countries set new targets for carbon-neutral energy. In many cities in the US and Canada, buses run on natural gas. There are incentives for drivers who buy hybrid or electric cars.

Renewable energy solutions like solar panel installations are incentivized with tax breaks and other measures. The demand for oil has shifted. Now it’s coming from the recently-industrialized, and still-industrializing world.

China, not the US, is fast becoming the most important market in the world for oil exports. Of course, this isn’t the only growing market. Countries like India and Brazil, which are also growing rapidly, have significant demand for oil, too. In fact, overall demand for oil is expected to increase by over 1.2-1.4 million barrels per day in 2020. This is not going to strain the market at all: production is expected to outstrip this demand by at least a factor of 3.

It’s clear that over time, the conversation about oil, its production and the overall market for this resource needs to change.

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