Oil markets awoke this morning to some bullish news. OPEC says its members have cut a deal to slash global oil supplies by at least 1.2 million barrels per day (mbd), and possibly much more if Russia follows through on its promise to cut. This will go a long way toward helping to shore up oil prices for at least the next several months and will also initiate a sizeable drawdown in global crude inventories, which have swelled by as much as a billion barrels amid the glutted post-2014 oil market.
But wait, you say. The long-term trends are still bearish. There is far more oil available, and at a much lower price, than almost anyone expected as recently as three years ago. There are even rumblings that investment cuts in more complex projects might not lead to the tighter oil markets once expected by decade’s end. And worse, global gasoline demand has peaked and oil markets should brace for a new cycle of slow growth, forcing all those new barrels to squeeze their way into a smaller market than once expected. The consequences are easy enough to infer. Low prices and weak profits for oil companies. A moment of reckoning for petro-states. And possibly a much-needed break for the climate.
Well, maybe. Without question, big changes are underway that likely signal a challenging outlook for the industry, especially for the oil majors—something I have written about before. But the latest rumors of oil’s demise may be greatly exaggerated. It’s true that recent projections from the International Energy Agency (IEA) show a pretty substantial slowdown in the rate of global oil demand growth in the coming decades, especially when compared to the past 30 years. But those projections rest on a few big assumptions that upon closer examination should give a little hope to the oil bulls.