The International Monetary Fund (IMF) said analysis of past oil market developments revealed “a strong and sustained declining trend in the global oil demand, after accounting for income and population growth.”
Oil demand “would peak by around 2040 in our benchmark projection or much sooner in scenarios of a stronger regulatory push for environmental protection and faster improvements in energy efficiency.”
According to the IMF staff study, at the current fiscal stance, fiscal sustainability will require significant consolidation in the coming years.
Growth of global demand for natural gas is also expected to slow, the Fund said, “although it is expected to remain positive in the coming decades.”
The report said the oil market has experienced a significant turnaround in recent years due to technological advancements as well as climate change concerns. This represents a challenge to the six-nation Gulf Cooperation Council (GCC) that accounts for over one-fifth of global oil supply.
Long-term fiscal health requires that average annual non-oil primary deficits decline from a current level of 44 percent of non-oil GDP to less than 10 percent by 2060.
“Managing the long-term fiscal transition will require wide-ranging reforms and a difficult inter-generational choice. Continued economic diversification will be important but would not suffice on its own. Countries will also need to step up their efforts to raise non-oil fiscal revenue, reduce government expenditure, and prioritize financial saving when economic returns on additional public investment are low," the IMF added.
The sudden and unexpected oil price decline of more than 50 percent during 2014-15 was among the largest in the past century, according to the report. “It amounted to a transfer of nearly USD6.5 trillion from oil-exporting to oil-importing countries, in the form of cumulative oil revenue decline, between 2014 and 2018. Many oil-exporting countries are still adjusting to the effects of this oil price decline.”
The 2014 oil price slump led to large fiscal deficits but has also served as a catalyst for significant reforms in GCC countries, according to the report.
Global oil demand will peak around 2041 at about 115 million barrels a day and gradually decline thereafter as the demand-reducing effects of improvements in energy efficiency and increased substitution away from oil begin to dominate the weakened positive impact of rising incomes and population.