Since the International Energy Agency announced that oil prices will continue to decline next year due to weak demand and increased production of shale oil, there has been confusion in the global financial markets, which has impacted energy production.
The agency predicted that the world will consume only 37 percent of global energy by 2040, thanks to measures taken by some countries towards energy savings, and structural economic changes in favour of services and light industries sectors.
While oil production in Europe has declined, Asian demand has increased by over 60 percent. Experts believe that demand will keep increasing to exceed 104 million barrels daily in 2040, an estimated increase of 14 million barrels.
Tension, panic and confusion caused by the drop in oil prices in the past few weeks is the result of weak demand due to the extraction of shale oil, sanctions imposed on Russia, debt issues in the euro zone, and instability in the Middle East that has caused oil production to decline in a number of Arab countries.
Oil prices have declined to their lowest levels in four years, going below $82 a barrel, and are expected to drop further.
Recently, a new economic term, “the economic cycle”, has emerged. It means that oil prices were the main factor during periods of change in the global economy, from expansion to recession and vice versa.
After crude oil prices hit their highest levels of $107.45 a barrel, they reached a low of $73.21 recently, which analysts called “a sharp decline”; so the agency suggested that the decline must remain the same until next year.
Among the reasons for the recession and weak demand is slow growth in China, which is the second largest importer and consumer of oil in the world, and the Euro debts are resulting in many economic reforms.
Another reason is Japan’s announcement that it has entered a period of recession, with indicators showing its economy is shrinking by 1.6 percent in the current quarter. This has cast a shadow on energy stocks.
There is still confusion in the global market despite optimistic recommendations from the Group of 20 (G20) during its recently concluded summit, where they vowed to strengthen and support the global economy by backing it with two trillion dollars, which means adding 2.1 percent by 2018.
The G20 prepared a financial reform plan aiming to support growth for all economies in order to escape the abyss of recession and achieve growth, even by a small margin.
Debt in European nations, tensions in the Middle East, stagnation in Japan and weak growth in China require joint efforts to tackle the global situation and chart a new fiscal policy in harmony with the status quo.
The global economy today is caught between cautious optimism and fear of the recurrence of a severe financial crisis that can be worse than its predecessor. However, there are also concerns that weak demand for oil will affect the economic activities of companies.
Regarding the current situation of the international economy, Fitch Ratings has emphasised that Gulf governments will continue to use high oil revenues to stimulate their economic development and the financial surpluses from past annual budgets will enhance expenditure.
A Qatar National Bank report indicates that financial asset growth of GCC banks will continue despite the reality of an emerging markets crisis due to the impact of the oil price decline and the increase of economic activity outside the oil sector.
The GCC countries do not rely on foreign capital to finance their economic activities, except to a limited extent. The accumulation of surpluses and oil revenue has led to the formation of a solid financial footing that saves these states from political pressures, improves the job market and opens new horizons for the banking sector.
The International Monetary Fund has declared that domestic oil demand, adequate foreign reserves and political stability will reduce the risk of a financial crisis if it happened. The effects of such a crisis will be limited despite what markets are facing today because of the decline in oil prices.
