Oil is poised for sustained growth.
Oil is poised for sustained growth.

News from the World Economic Forum continues to trickle out to reporters and analysts alike, with one of the biggest topics of discussion being the future of the energy market.

Oil ministers, government officials and a host of lawmakers convened in Davos, Switzerland for a four-day summit, an annual affair that brings together the world’s most important decision-makers in the hopes of reaching agreements on broad-based, comprehensive policies. Beginning Jan. 17, the World Economic Forum closes Jan. 20, and officials will walk away with a greater understanding of their own economic futures as well as those of other nations.

One of the more bona fide statements made during the forum came from the CEO of a company in oil-rich Saudi Arabia, who told a panel that it will still be several decades before renewable energy is scaled and priced properly to overtake petroleum-based fuel resources, according to CNBC. In fact, to simply meet current and projected energy demand, roughly $25 trillion of investments in oil capacity over the next 25 years will be required.

Investing and building more
Amin Nasser, CEO of Saudi Aramco, noted renewables will not likely be dominant for some time, if ever. Though oil prices are currently low and his nation is bound to production curbs per OPEC mandates, Nasser stated Saudi Arabia is still working on building more oil facilities and preparing for higher demand. Once prices turn around, the rewards could be enormous, especially for a country that relies heavily on oil profits.

It’s not just Saudi Arabia that predicts a promising future for oil. Russia and the U.S. do as well.

According to Reuters, this year’s World Economic Forum is in stark contrast to 2016’s. Prices were hovering around $30 per barrel and Russia – Western relations were worsening. This gloom shaped many nations’ outlooks, and oil seemed to be a common denominator in terms of what was dragging economies down.

But the election of Donald Trump, who has signaled relaxed sanctions and better relations with Russia, has revitalized the Kremlin’s outlook and created an entirely new oil landscape. Additionally, Trump’s nominee for Secretary of State, Rex Tillerson, former CEO of Exxon Mobil, has provided a renewed sense of prominence for oil on the global energy stage.

With many powerful oil executives now playing larger roles in economic and foreign policy, oil appears to be heading for higher grounds. Russia, a large exporter of oil, has seen better stock performance and a stronger economy compared to the same point in 2016, and believes the sky is the ceiling.

Andrei Guryev, CEO of PhosAgro, a large fertilizer company, stated Russia now feels that it can talk openly with Western nations once more, and one key point of discussion is oil, Reuters reported.

“The easing of sanctions will reopen cheap foreign capital markets again for Russian companies,” said Guryev. “It will stimulate local business, allow the central bank to cut interest rates and as a result spur Russia’s GDP growth.”

“We know that after past crises the Russian stock market was bouncing back by several times,” Guryev continued. “There is potential for growth by another 50 percent and more and it is not necessarily linked to the easing of sanctions but also to economic growth.”

Will investment continue long term?
Near-term outlooks on oil have been promising, and for good reason. Oil is nearly twice as profitable as it was roughly a year ago. And nations have reached agreements to force prices up even higher in the future, making it an even stronger investment.

Whether this trend continues for another 25 years, however, is difficult to guarantee. Rising population numbers will necessitate more use of resources, which oil is poised to meet. Getting multinational corporations and foreign governments on the same page for such a long period of time without the potential interlude of economic contraction is an enormous challenge, making $25 trillion in investments seem like a lofty projection.

On the other hand, there currently is no resource or market better positioned to capitalize on growing energy demand, as renewables still have years to go before they become widely viable without continued incentives and federal subsidies.