Consumer preferences are however influenced by a range of factors mostly influenced via energy transition. Different stakeholders often make vigilant decisions based on market fundamentals and profit considerations. However, the year behind us was exceptionally unique in that most stakeholders including banks and financial institutions, oil analysts, hedge fund managers, and powerful institutions including the International Energy Agency, moved in the wrong direction and changed course throughout 2024. As such it is essential to explore the current landscape of the global oil market, anticipated trends, and the challenges which lie in the structure of oil markets in 2024.
Interplay of Tensions
The global oil markets in 2024 were characterized by a complex interplay of geopolitical tensions, economic uncertainty, technological advancements, and shifting energy policies and patterns. The oil demand witnessed a resurgence after a period of sluggish growth. The present note is aimed to discuss various factors influencing the oil markets in 2024. However, the market behavior in 2024 was influenced by various factors that were accumulated and built up since the beginning of the year 2020. The year 2024 was an exceptional year for the market as it experienced the highest rate of demand since the Pandemic. During the first three quarters of 2024, global oil markets registered an additional demand growth of 1.43 mb/d. Such a rate of demand growth has not been seen since the 2020 oil demand collapse. At the time of writing this note, we have not yet seen a confirmed and reliable figure for demand growth for the 4Q2024. However, it is estimated that in the last quarter of the year, demand growth figures surpassed expectations and will probably finish the year with an additional 150 tb/d. 2024 is considered a significant year for the international oil industry in that for the first time in history, emerging economies consumed more oil than the industrialized countries. This is due to the higher rates of industrialization, transportation, and enhanced demographic patterns in countries such as India, ASEAN, and Latin America countries.
Energy Transition
The term “energy transition” refers to the global shift from one source of energy to the other. The type of energy has been transformed over the years. During the early 1980s, the United Nations took a vigorous position toward energy and rebranded “energy transformation” to “energy transition”. However, the 2015 Paris Agreement further solidified the energy transition by linking it to the carbon emissions phase-out. As such 2015 Paris Agreement established a significant milestone in international climate negotiations, setting ambitious targets for mitigating GHG emissions and curbing global warming. This set the goal and defined commitments by the UN member countries to curb GHG emissions as a fundamental development goal. As such geothermal energy is being prioritized as an alternative to traditional energy.
Global Energy Mix
Oil has historically played a dominant role in the world energy mix. Oil has served as a primary source of energy for transportation, industry, and electricity generation. Britain fought and won two world wars thanks to oil as fluid fuel against its enemies who still fought using solid fuel namely coal. However, now that oil served the purpose, they opted to move away from oil to other sources of energy which are not available to most of the emerging economies in the world today.
When countries voted to reduce oil consumption aggressively in the 2015 Paris COP, there was hardly any meaningful voice from oil producers and less developed countries. Paris Climate Accord took carbon dioxide emissions into its own hands and ignored the rest of the world. OECD took advice and direction from the IEA and ignored other well-established and reputable institutions including the OPEC. The International Energy Agency was so emboldened by the Western-dominated COP agenda that went as far as eliminating all forms of fossil fuels by 2040. This agenda was unanimously approved at a time when OECD members consumed over 60 percent of the world’s coal production which is far more polluting than oil and gas.
Carbon Emissions Issues
Undoubtedly, climate change issues have been politicized for certain concerned groups and possibly with or even without the intention of governments. The release of sudden and overwhelming evidence and documents on a catastrophic vision of global warming seems manipulated and framed. Having a glance at the political landscape in Europe where climate change models were first reported and presented, one might notice a simultaneous surge of certain political parties that advocated climate action views and serious frictions with the existing political and geopolitical landscapes.
Scientific facts and evidence were employed to advocate climate change as a threshold for the emergence of a new era of human civilization. It is said that climate activists are financially supported by political lobbyists. Messaging about climate change is not in line with scientific methods of advocating certain factual evidence. The way climate change is discussed in the media and political circles may sometimes overshadow other important issues, leading to the assessment which is being used as a tool for political leverage rather than a genuine environmental concern.
It is crystal clear for scientists and energy stakeholders that oil is cleaner than coal and gas is cleaner than oil. Scientists have unanimously approved the fact. As such gas is a bridge from oil to renewable sources of energy. This leads to the fact that a meaningful change in energy transition is energy-inclusive. The world economy did not jump from wood to coal and from coal to oil and gas. As such the framing of the climate change issue sounds pretty politicized and contradictory to scientific evidence.
COP29 in Baku: A Turning Point
The 29th Conference of Parties was held in November 2024. The event was not well received by the mainstream media as was expected. However, it could be regarded as one of the most important energy-related events of the year behind us.
COP29 was held in a country with not much of resources other than oil. COP28 was also held in the United Arab Emirates, a country known for its oil. Two consecutive climate change conferences in oil-producing countries had a message. This is an indication that the OECD members have realized that they have to differentiate between facts and fiction, and between climate realities and climate activism. It is also a powerful message that the oil-producing countries intend to place the climate change issue where it can be heard well. In the meantime, the 30th COP will be held in Brazil, a country that intends to join the oil-producing Club of Nations and a member of BRICS.
The reason why I intended to bring up the issue of COPs and COP29, in particular, is that, unlike the previous COP, several world leaders refrained from attending the conference almost entirely due to the geopolitical situation around the world. In fact, it was one of the rare COP meetings where leaders had more important things to attend than the Climate Change Conference. Other priorities diverted focus from the imperative to act on climate change.
This dynamic was on the show at COP29 in Baku. In the meantime, the coalition of oil producers was all in attendance. The coalition of oil-producing nations virtually blocked any mention of phasing out fossil fuels in the final agreement. In many ways, the oil-producing countries joined forces with the emerging world to voice their opposition to phasing out fossil fuels in a manner that is convenient for the Western Hemisphere. Climate change is a global problem and it requires global wisdom and cooperation.
It is noteworthy that in COP29 sessions something still more interesting emerged: climate change is itself beginning to impact geopolitics. This is like a vicious circle. Climate change is making geopolitics less stable, which harms climate actions. This will worsen climate change, meaning more geopolitical instability and so on. The risk is that the circle runs faster and ultimately derail the ability to phase out fossil fuels fast enough to avoid the climate consequences.
US Presidential Election Results
The US presidential results are considered a threshold for the United Nations Framework Convention on Climate Change conferences.
Eight years ago when the Trump administration was stationed in the White House, the American delegation wandered around aimlessly in Morocco during COP22 shocked and confused about what they must do. Trump was preparing for the process of leaving the Paris Climate Agreement and his administration was perplexed about the issue of climate diplomacy. In fact, Trump got the entire Texas vote under the pretext that he would promote more drilling, more shale, and America’s self-sufficiency in energy production and consumption.
Macro factors play a much more important role this time. There is hardly anything more that Trump can do to curb the force of climate change activists and promote oil production. President Biden has been more Trumping than Trump himself. Biden promoted oil production LNG production and exports in a way that no other president has been able to do.
US shale oil production is already aging. Trump’s energy policies cannot pump more oil than has already been tapped. This time, the new administration must tackle the massive US debt problems, inflation which is temporarily stable for now but can shoot higher soon. In the meantime, interestingly climate can play its role as a factor driving inflation.
The issue of energy transition is highly politicized and divides the OECD from the emerging economies.
Factors in 2025
While discussing the oil market fundamentals in 2025, all eyes are focused on the supply side. This certainly has relevance but several macro factors are deeply intertwined in the market direction. In continuation, I would like to shed more light on some important issues.
Europe and China enjoyed cozy trade and economic ties for some twenty years. The United States was into it as well, though somewhat differently.
European Union imported relatively cheap and abundant energy from Russia. China posed as the world factory and produced parts and equipment for Europe and to some extent the US. Major European countries, mostly Germany and France manufactured and exported huge quantities of machinery and finished products to China.
So far so good. All were happy and the EU was the happiest. European vehicles were on the roads in the streets of Shanghai and Beijing. In the meantime, oil producers were among the most beneficiaries. At some point in time, China imported some 14.4 mb/d of oil mostly from Middle Eastern countries. The war in Ukraine changed many parameters fast. Faster than expected.
The flow of Russia’s piped natural gas into Europe was disrupted. The volume of gas supplied to most of Europe was squeezed. The US Shale gas production was increased by four times in one year. The US captured EU gas markets by sending huge volumes of gas in the form of LNG to Europe. Though the price that the Europeans paid was four times higher. In the meantime, China introduced its Plan B economic model. China changed course from an export-oriented to an inward-looking economy. In the meantime, China surfaced lots of hidden Artificial Intelligence technologies. China is rich in rare mineral resources and in the meantime has invested heavily in Africa and Latin America for rare earth resources. China has virtually overcome the obstacles related to batteries that are essential for making modern-day technology. Today four out of five cars that are manufactured in China are Electric Vehicles (EV). In Europe, it is the vice versa. Only one out of every four cars manufactured in Europe is EV. Chinese cars are capturing European markets in a big way.
Historic Transition
One of the major factors that influence the global oil market is related to a historic transition characterized by turmoil and economic transformation in the Middle East. The region is moving away from a geopolitically important region towards geoeconomics. It is interesting to note that China is positioned to play a major role in the new Middle Eastern configurations. The region is gaining significance in the way that China is vigorously supporting it as a substitute for Europe. It is commonly argued that Europe and the Euro will continue to weaken and will not be a strong player in the world economy. China is vigorously trying to replace Persian Gulf economies with that of the Eurozone.
Such convergence will accelerate changes in the region and will shape the future regional landscape across the Middle East. It is also evident that the Middle Eastern countries are actively attempting to join the BRICS and Asian regional integration. This trend is already evident from closer relationships between Iran and other major economies in the region with that of China. The Middle East has emerged as a key destination for China’s new energy companies, providing vast development opportunities despite increased global trade challenges. The Middle East offers significant advantages due to its abundant solar and wind resources.
The Asian century has arrived and is here to stay.
The biggest oil producers and consumers of the world oil are Asians. It is for Asia to decide the future of the oil industry. I believe that 2025 will be a crucial year for the Global South.
Fereydoun Barkeshli
Energy Market Analyst
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