What will sustain bullish oil demand?

The Organization of the Petroleum Exporting Countries (OPEC) has released its 2023 World Oil Outlook, projecting a significant increase in global oil demand to reach 116 million barrels per day by the year 2045. This forecast shows a substantial uptick of around 6 million barrels compared to last year's report, challenging other recent predictions in the industry. To shed light on this bullish momentum, Chinnan Dikwal, Vice Chair at the African Energy Council, shared insights during an interview on CNBC Africa. The divergence between OPEC's optimistic outlook and other industry forecasts, notably the International Energy Agency (IEA), raises eyebrows. The IEA had previously suggested that oil demand might peak in this decade, contrasting sharply with OPEC's latest report. Dikwal acknowledged this misalignment, highlighting the contrasting views as a crucial development in the energy sector. The key driver behind OPEC's bullish forecast seems to be a combination of factors, including robust growth expectations in regions like India, China, Africa, and the Middle East. These areas are anticipated to experience significant population growth, leading to an upsurge in oil demand. In contrast, the IEA anticipates a decline in oil consumption in the short term due to regulatory measures like the carbon border adjustment mechanism and the rise of alternative energy sources like solar, wind, and electric vehicles. Despite projecting a substantial increase in oil demand, OPEC acknowledges the need for massive investments totaling up to $14 trillion by 2045 to support this growth. However, the current trend shows a shift towards investments in renewable energy sources, with solar energy surpassing oil investments for the first time in 2022. This paradigm shift poses a challenge to OPEC's bullish outlook and underscores the increasing importance of transitioning to cleaner energy solutions. Dikwal emphasized the complexity of the energy transition landscape, outlining the potential impacts of evolving technologies like electric vehicles and renewable energy sources. While OPEC's forecast aims to instill confidence in the market and attract investments, the growing influence of renewables signals a transformative shift that cannot be ignored. The strategic implications of OPEC's positive forecast also raise questions about market dynamics and competitive positioning. Amidst concerns about the rationality of continued investments in fossil fuels and the valuation of oil assets, OPEC's rhetoric serves as a defensive strategy to preserve its market share and influence. By projecting a bullish outlook, OPEC aims to bolster investor confidence and ensure ongoing support for the oil industry. As the global energy landscape evolves, the interplay between traditional oil demand and the rise of renewable energy sources creates a complex scenario for industry stakeholders. While OPEC's forecast indicates continued growth in oil demand, the emergence of renewables poses a formidable challenge that necessitates careful attention and strategic planning.