January 11, 2016

Multi-decade reductions in Oil usage from shift to solar, batteries and nuclear will have geopolitical impacts on OPEC nations

People have mainly been looking at the shift to electric cars over the next few decades in terms of an overall environmental impact. This would slow climate change by reducing emissions and air pollution. However, there is an interesting geopolitical impact.

* current near term forecasts of oil prices see oil possibly going to $20 per barrel
* OPEC has a relatively business as usual forecast where oil does not reach $95 per barrel until 2040
* $50-60 per barrel oil might not return until 2017-2019
* there is an overall global decrease in oil demand and reduced growth in oil demand with the reduced economic performance in China and the World
* there are many predictions of a massive shift to electric cars, solar and batteries between 2020 and 2050. This could be translated into scenarios where the shift to electric transportation increases by 1 to 3% per year
* A technology shift away from oil usage would reduce oil demand and reduce the revenue and prices for oil producing countries
* there would still be oil usage and there is an offsetting effect where the overall world economy can double in size over 20-40 years
* oil being mostly removed from transportation usage could further weaken the long term oil pricing outlook

A multi-decade weak oil pricing scenario would mean that oil producing nations could become weaker geopolitically and it can mean that oil producing nations could adopt a pump or lose it strategy instead of conserving reserves under an assumption of vastly higher future prices.


European and US oil consumption shrank even before a massive shift to electric cars, batteries, solar and nuclear


Strong growth had increase oil demand in China and other developing countries. This was because of a large increase in car ownership and usage.




A rapid appreciation of the U.S. dollar may send Brent oil to as low as $20 a barrel, according to Morgan Stanley.

Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Jan. 11. A global glut may have pushed oil prices under $60 a barrel, but the difference between $35 and $55 is primarily the U.S. dollar, according to the report.

Brent crude capped its third annual decline in 2015 and has already lost more than 11 percent so far this year. The Organization of Petroleum Exporting Countries effectively abandoned output limits in December, potentially worsening a global glut, while U.S. stockpiles remain about 100 million barrels above the five-year average.

Oil tumbled last week on volatility in Chinese markets after the country sought to quell losses in equities and stabilize its currency.

Morgan Stanley is not the first to forecast a drop to $20 oil, but its reasons differ from other banks. Goldman Sachs Group Inc. has said there’s a possibility storage tanks will reach their limit, pushing crude down to levels necessary to force an immediate halt to some production.

“Oil in the $20s is possible, but not for the reasons often cited,” Morgan Stanley said. “It’s not about deteriorating fundamentals.

OPEC forecasts do not expect to see $95 per barrel oil again until 2040.





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