The world consumed last year nearly 100mn barrels a day of oil, according to Bloomberg estimates. And some in the energy industry believe that could mark the peak for global demand.
Their hypothesis is that the coronavirus outbreak will trigger changes, like widespread working-from-home and less overseas travel, reducing consumption permanently.
For sure, the Covid-19 outbreak has ripped through the oil industry with a double whammy.
The pandemic first destroyed demand as lockdowns shut factories and kept drivers at home. Consequently, storage started filling up and traders resorted to ocean-going tankers to store crude in the hope of better prices ahead.
But here’s a different view.
Global oil consumption hasn’t peaked, the head of the International Energy Agency has said, throwing cold water on predictions the coronavirus will cap demand and reduce climate-changing emissions.
“A sustained economic recovery and low oil prices are likely to take global oil demand back to where it was, and beyond,” Fatih Birol said in an interview.
For sure, there are signs of global oil demand picking up.
From the Middle East to Siberia, the North Sea down to Latin America, the prices of physical cargoes of crude oil are rallying hard almost everywhere.
Brent crude traded on the ICE Futures Europe exchange has nearly doubled over the past month and is trading above $36 a barrel, while America’s West Texas Intermediate – which dipped into negative territory at one stage – has also soared.
All that’s happened because global producers have slashed millions of barrels of output, while demand has started to recover, led by China.
Now, though, the attention is turning toward just how sustainable the recovery will really be.
Oil prices have surged more than 75% in the US this month. But a quick rebound in supply from shale explorers is unlikely.
Shale explorers have been turning off rigs at a record pace because the oil rout has gutted cash flow needed to lease the machines and pay wages to crews.
Overall production is seen falling by 197,000 barrels a day next month to 7.822mn barrels, which would be the lowest since late 2018.
Longer term, however, what’s in store for the oil industry?
The virus recession looks set to outstrip even the most pessimistic of early forecasts. Due to strict lockdowns across major economies, and growing realisation that the path back to normality will be long, Bloomberg Economics recently cut the estimate for 2020 global growth to -4.0%, down from -0.2% in the last forecast round, and 3.3% at the start of the year.
The cost of lost output was seen more than $6tn.
The oil industry is also making sweeping changes in an effort to adapt itself to the Paris climate goals. Major companies including BP, Royal Dutch Shell and Total have promised to cut emissions significantly and investing more into renewable energy as they come under pressure from more ecologically conscious shareholders.
The IEA, which advises the world’s richest countries on energy policy, is sticking to its longer-term view that global oil demand will continue to increase over the next decade or so, before reaching a plateau around 2030.
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