Crude oil demand is under the cloud.
Not long ago, global demand was expected to peak around 110 million barrels per day (bpd).
And in 2007, the Organization of Petroleum Exporting Countries (OPEC) forecast world demand for crude oil would reach even higher – 118 million bpd by 2030.
But that was a different world.
By 2019, even before the pandemic hit, the OPEC forecast of peak oil demand had dropped to 108.3 million bpd, courtesy of the changing global energy mix.
Now, the lingering implications of the pandemic have lowered demand projections further.
According to the International Energy Agency’s World Energy Outlook 2020, global oil demand will recover from its historic drop in 2020. But demand by 2030 is expected to be two million bpd lower than previously projected
So IEA expects demand to plateau. It points out that with nine million consumers worldwide deferring car replacements in 2020, vehicle turnover will slow, while sales of electric vehicles remain resilient.
Norwegian energy consultancy Rystad forecasts oil demand will peak at around 102 million bpd by 2028 rather than 2030.
The world has already passed peak oil demand, says oil major BP. It adds that demand could soon fall rapidly in the face of stronger climate action – by at least 10 per cent this decade and as much as 50 per cent over the next 20 years.
The pandemic has hit the oil industry hard. And with another COVID-19 wave underway, oil consumption is set to take another battering. Lockdowns are threatening the very fabric of the oil industry.
On Nov. 3, as United States voters went to polls, Austria began its latest lockdown. A week earlier, France began implementing a second lockdown, which is expected to last at least until Dec. 1.
Germany has been under lockdown since last week. The energy market research group AGEB says Germany’s energy consumption is set to fall this year by 10 per cent while its crude oil consumption could go down by three per cent due to these additional restrictions on the economy.
The United Kingdom and Portugal are also under second lockdowns. And in a desperate attempt to contain the virus, Italy is restricting travel and introducing a night curfew.
The pressure on OPEC is mounting and revenues are falling. OPEC members are set to earn $323 billion in net oil export revenues this year, compared to $595 billion last year, the U.S. Energy Information Agency reports.
Saudi Arabia state oil company Saudi Aramco has reported profits 45 per cent lower in the third quarter. In fact, Aramco has reported consecutive declines in quarterly profits since it began disclosing earnings last year. This is piling pressure on Saudi government finances.
So OPEC faces a double whammy: demand is crumbling and market prices continue to fall, thanks to the global economic slowdown.
What can the OPEC do?
Most oil-producing members of the organization are single-product economies. Some are beginning to feel unease at output controls. There were indications that starting next year, the group was considering opening the taps, at least somewhat.
Yet the lockdown and crumbling demand make it difficult for OPEC members to open taps any further.
So OPEC members have been talking about extending production cuts beyond January 2021 to some indefinite future date, says Julianne Geiger, writing for Oilprice.com.
And so the crude oil market cloud gets darker.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.