Oil market rebounds but uncertainty looms
- Asia will continue to dominate growth in global oil demand, accounting for 90% of the increase between 2019 and 2026 in the IEA report’s base case
Mumbai: World oil markets have rebounded from the massive demand shock triggered by Covid-19, but still face a high degree of uncertainty that is testing the industry like never before, according to a new report from the International Energy Agency (IEA).
“The Covid-19 crisis caused a historic decline in global oil demand – but not necessarily a lasting one. Achieving an orderly transition away from oil is essential to meet climate goals, but it will require major policy changes from governments as well as accelerated behavioral changes. Without that, global oil demand is set to increase every year between now and 2026," said Fatih Birol, IEA’s executive director.
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“For the world’s oil demand to peak anytime soon, significant action is needed immediately to improve fuel efficiency standards, boost electric vehicle sales and curb oil use in the power sector," he added.
Those actions-- combined with increased teleworking, greater recycling and reduced business travel -- could reduce oil use by as much as 5.6 mb/d (million barrels per day) by 2026, which would mean that global oil demand never gets back to where it was before the pandemic.
Asia will continue to dominate growth in global oil demand, accounting for 90% of the increase between 2019 and 2026 in the IEA report’s base case. By contrast, demand in many advanced economies, where vehicle ownership and oil use per capita are much higher, is not expected to return to pre-crisis levels.
On the supply side, the heightened uncertainty over the outlook has created a dilemma for producers. Investment decisions made today could either bring on too much capacity that is left unused or too little oil to meet demand.
Only a marginal rise in global upstream investment is expected this year after operators spent one-third less in 2020 than planned at the start of the year.
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“No oil and gas company will be unaffected by clean energy transitions, so every part of the industry needs to consider how to respond as momentum builds behind the world’s drive for net-zero emissions," said Dr Birol.
“Minimising emissions from their core operations, notably methane, is an urgent priority. In addition, there are technologies vital to energy transitions that can be a match for oil and gas company capabilities, such as carbon capture, low-carbon hydrogen, biofuels and offshore wind. In many cases, these can help decarbonise sectors where emissions are hardest to tackle."
The global refining sector is struggling with excess capacity. Shutdowns of at least 6 millions barrels per day (mb/d) will be required to allow utilisation rates to return to normal levels.
Meanwhile, China, the Middle East and India continue to drive new capacity growth. As a result, Asian crude oil imports are forecast to surge to 27 mb/d by 2026, requiring record levels of Middle Eastern crude and Atlantic Basin production to fill the gap.
The petrochemical industry will continue to lead demand growth, with ethane, LPG and naphtha together accounting for 70% of the forecast increase in oil product demand to 2026. Gasoline demand may have peaked, though, as efficiency gains and the shift to electric vehicles offset mobility growth in emerging and developing economies.
Demand for aviation fuels, the area that was hardest hit by the pandemic, is forecast to gradually return to pre-crisis levels. But a shift to online meetings and conferences – along with persistent corporate efforts to cut costs and hesitation by some citizens to resume leisure travel – could permanently alter travel trends.
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