The Changing Dynamics of the Oil Market

21 October 2015

“The oil market is no longer dominated by the demands and economies of the advanced economies of the world such as the US and Europe. Today, emerging markets dominate the market, with the exception of shale oil and gas which started in the US and Canada, but is slowly expanding internationally,” says Dr. Nasser Saidi, Former Minister of Economy & Trade of Lebanon.

Dr. Nasser Saidi, Former Minister of Economy & Trade of Lebanon, presents investors with an overall understanding of the factors currently affecting the oil market and the investment opportunities arising.

First and foremost, technological factors have led to a substantial impact on the oil market, with the biggest change being the shale oil and gas technological discoveries which are responsible for lowering the cost of extracting oil and gas, explains Saidi.

Another major factor is the economic adjustments China is currently undergoing. China has been the fastest growing market for Middle Eastern oil and two years ago became the number one importer of Saudi oil, overtaking the US. As a result of China’s expansion over the past 15 years we have seen a demand-driven rise in commodity prices, particularly oil. However, more recently, China has been experiencing a slowdown in growth, alongside a move towards more energy efficient activities. China has been gradually shifting away from heavy industries and manufacturing towards a growing focus on consumer goods and services. As a result, the decrease of demand from China is causing a deep impact on the Middle Eastern oil markets.

The combination of these two factors, both on the supply and the demand side, has led to substantially lower oil prices than what they were in 2014 and they are likely to remain so for the foreseeable future, predicts Saidi.

Saidi continues to say that another increasingly important factor in this mix is renewable energy. The costs of solar and hydro technologies have gone down, thus we are seeing greater adoption rates by both public and private sectors. Governments have started to change policies to provide more incentives for renewable power, and therefore Saidi believes this is one of the fields investors should explore further.

The Middle East has been lagging behind its peers in terms of providing incentives to shift towards renewable energy since half of the oil subsidies are in this region, admits Saidi. In addition, the fact that governments were in charge of power, hence monopolies, also meant that there were no incentives to make this shift. However, as a result of lower oil prices they are slowly realizing and adjusting to the fact that adopting renewable energy is a new investment opportunity. The public sector and governments are now increasingly giving way to the private sector to build solar power plants, so there is now an opportunity for investors to come in compared to previous times when power production was a sole responsibility of governments.

Saidi truly believes that this field will witness major investments in the next 15 to 20 years and it will be all encompassing; it will be a call for greater energy efficiency in all activities ranging from transport to buildings to manufacturing. Also critical will be the need for new discoveries that will reduce the cost of solar and other forms of renewable energy and more importantly for the region, desalination. Developments in desalination technologies are going to be increasingly important on a global basis as once countries start running out of water, they will have to rely on sea water and focus on desalination.

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