By David Hodari and Rebecca Elliott
The world's thirst for oil is unlikely to peak for two more
decades but may already have crested in the U.S. and other
wealthier countries, according to a forecast by OPEC.
The demand estimate, from one of the oil market's most
persistent bulls, punctuates the speed at which the coronavirus
pandemic has upended the world's energy mix.
The Organization of the Petroleum Exporting Countries expects
demand for its core product to fall more than 10% among the world's
richest economies this year, and says it will never return to
pre-pandemic 2019 levels.
Over the course of the next 25 years, it expects demand in those
most developed countries to fall by about 27%, according to its
closely watched annual oil supply and demand survey.
The steep forecast drop in demand among the Organization for
Economic Cooperation and Development, a club of the world's richest
economies, marks "an evolutionary shift in demand from developed to
developing countries," said OPEC Secretary-General Mohammed
Barkindo, during an online press conference unveiling the report
In recent years, developing world demand has outpaced that of
the developed world, as consumers in fast-growing economies,
particularly China, drive cars, take vacations and buy and run air
conditioners at a pace starting to approach their traditionally
more affluent counterparts in the West.
The shift has been magnified by slow or stagnant population
growth in richer countries, decades of fuel efficiency efforts and
an accelerated embrace of alternatives to fossil fuels for powering
everything from cars to electricity grids. Oil demand peaked in the
OECD about a decade ago and fell steeply amid the global financial
crisis. Since bottoming out, though, it had recently resumed a slow
Then Covid-19 hit.
Spencer Welch, director of oil markets at consulting firm IHS
Markit, expects the economic shutdown related to the pandemic and
changes in how people work and live afterward to permanently reduce
global oil demand by some 3% -- or about 3 million barrels a day.
While much of the rest of the world will eventually resume and
exceed the level of its thirst for oil reached last year, before
the pandemic hit, OECD demand "is already past its peak."
Mr. Welch points to a still-small but fast growing shift to
electric vehicles in pockets of the West. Sales of electric cars
accounted for just 2.6% of global car sales but were up 40% from
the previous year, according to the International Energy Agency.
That growth is most pronounced in the developed world. During the
second quarter, electric vehicles and plug-in hybrids made up about
7% of total new car sales in the European Union, according to the
European Automobile Manufacturers' Association.
Advances in alternative energy like wind and solar, meanwhile,
have increasingly taken market share from oil in global markets.
The OPEC report forecast that globally, non-fossil fuels, such as
nuclear, biomass and renewables like wind and solar, will make up
27.5% of the world's energy demand by 2045, up from last year's
18.7%. It said oil demand for feeding the world's electricity grids
-- one of the world's biggest sources of demand -- has also already
Robert McNally, a former adviser in the George W. Bush
administration and president of consulting firm Rapidan Energy
Group, said many Western governments are already laying out plans
to use the crisis as an opportunity to rethink energy policy.
"In Europe we're seeing recovery plans with a heavy
decarbonization component," he said, "and more aggressive talk
about new fundamental laws."
OPEC didn't have all bad news for big crude producers like its
members, led by oil giant Saudi Arabia. The world's overall
appetite for crude won't reach its apex for another two decades, it
said, offering a much more optimistic view of global long-term
demand than other forecasts.
OPEC forecast oil demand will plateau in 2040 at 109.3 million
barrels a day -- some 10% above its 2019 level. It said that in 25
years non-OECD oil demand will have increased 43% from last year's
levels, partly driven by economic booms in China and India.
That contrasts with a much more pessimistic view offered last
month by oil giant BP PLC, one of a handful of mostly European
major oil companies, that is now investing heavily in renewable
energy. The British company said in its own closely followed
long-term energy outlook last month that oil demand may already
have peaked .
American producers, too, are already wrestling with the prospect
of shrinking demand for their products. Two-thirds of oil and
natural gas executives who responded to a recent survey by the
Federal Reserve Bank of Dallas said they think U.S. oil production
peaked earlier this year around 13 million barrels a day. Output
has since fallen to around 11 million barrels a day, according to
the U.S. Energy Information Administration.
Meanwhile, fuel makers from Marathon Petroleum Corp. to
HollyFrontier Corp. have closed refineries in the face of weak
appetite for products including gasoline and diesel. Many are now
looking to convert those facilities to biofuels production, enticed
by what they see as a growing market for products that generate
less soot and fewer greenhouse gas emissions. Biofuels such as
renewable diesel can be made from animal fat or used cooking oil
and are used to satisfy government fuel regulations designed to
Investors have seen opportunity in greener fuels, too. Shares in
Iowa-based biofuel company Renewable Energy Group Inc. have more
than tripled in value in the last year, as an index of the three
largest U.S. independent refiners fell by roughly half, S&P
Global Market Intelligence data show.
--Pat Minczeski contributed to this article.
Write to David Hodari at David.Hodari@dowjones.com and Rebecca
Elliott at email@example.com
(END) Dow Jones Newswires
October 08, 2020 15:53 ET (19:53 GMT)
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