Summary: The outbreak and persistence of the COVID-19 pandemic have undoubtedly delivered a violent shock to the global oil industry this year. The plunge and rebound in oil demand triggered sharp volatility in global oil product inventories and prices, while an unprecedented supply-cut deal helped stabilize prices for now.
The outbreak and persistence of the COVID-19 pandemic have undoubtedly delivered a violent shock to the global oil industry this year. The plunge and rebound in oil demand triggered sharp volatility in global oil product inventories and prices, while an unprecedented supply-cut deal helped stabilize prices for now.
At first, industry insiders expected global oil demand to return to pre-pandemic levels within a year or two. Now, that view appears overly optimistic. The pandemic will also affect policymakers' perceptions of energy security, awareness of the urgency of climate change, energy policies, technology and investment. Moreover, these effects will be long-term, though they are still evolving.
The International Energy Agency's World Energy Outlook 2020, released on the 13th, and OPEC's World Oil Outlook 2020, released on the 8th, both analyzed and forecast the pandemic's impact on the energy industry.
The IEA warned that the impact of the pandemic on the energy system will persist for many years. Global oil demand will fall by 8% this year, and Brent prices will not reach $50 per barrel until 2023. If countries' policies and targets are implemented smoothly, global energy demand will also return to pre-pandemic levels by early 2023. But if the pandemic drags on and the downturn deepens, that point will be postponed to 2025.
IEA Executive Director Fatih Birol said the era of global oil demand growth will come to an end within the next decade. However, with no major policy shifts by governments, there are still no signs of a rapid decline in oil demand.
Recently, BP, Total and a number of other established upstream oil companies and oil trading giants have all said global oil demand will peak in the coming years. The IEA's forecast has undoubtedly reinforced that view.
OPEC, for its part, believes the pandemic will have a significant negative impact on OECD economic growth prospects. OECD oil demand will remain high at 47 million barrels per day from 2022 to 2025, and will then gradually decline. This implies that oil demand in OECD countries may never return to the 47.9 million bpd level of 2019.
Although OPEC projects in its annual report that global oil demand will reach 109.1 million bpd by 2045, still nearly 10 million bpd higher than in 2019, growth after 2035 will be very slow. Its forecast for 2045 oil demand is more than 1 million bpd lower than its previous year's forecast for 2040 demand.
OPEC believes that if the pandemic is largely brought under control in 2021, global oil demand will recover partially, with healthy growth expected in the medium term. Non-OECD oil demand will rise from nearly 52 million bpd in 2019 to 74 million bpd in 2045. India will have the largest increase in oil demand over this period, adding 6.3 million bpd.
The IEA also said global investment in the energy sector will fall by 18% this year. The sharp reduction in investment will increase the risk of future market volatility.
Norwegian consultancy Rystad Energy expects global oil-related investment to fall by more than 30% this year, and it will not return to 2019 levels until 2024-2025.
If upstream oil companies adjust their investment directions according to the trend of energy transition and the belief that oil demand has peaked, the oil industry may see a 'self-fulfilling prophecy'. In addition, investors are voting with their feet, adding external pressure on oil companies.
As for future energy demand, the IEA believes renewable energy will play a leading role in all four of the development scenarios it has set out, with solar power at the center of the stage. Its cost advantage over coal-fired and gas-fired power is an important driver.