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Oil Drops on Inventory Build

Oil Drops on Inventory Build

Crude oil prices moved lower…

Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Has Demand For Oil Already Peaked?


Oil prices continue to rise on the prospect of a rebound in fuel demand as economies begin to reopen.  But there is a large difference between oil demand rising from recent lows and actually growing relative to pre-COVID-19 trends. In other words, demand destruction on the order of nearly 30 million barrels per day (mb/d) may have been brief, but we are a long way from a 100-mb/d oil market. 

In fact, some are wondering whether the world will ever get back to 100 mb/d of oil demand. Even oil executives have their doubts. Royal Dutch Shell’s CEO Ben van Beurden recently suggested that a rebound is unlikely, even looking out beyond 2020. “We do not expect a recovery of oil prices or demand for our products in the medium term,” he said.

“We basically have a crisis of uncertainty. Uncertainty about demand, about prices,” van Beurden said in a video address when presenting first quarter results at the end of April. “Maybe even uncertainty about the viability of some of our assets given all of the logistical issues we have.”

BP’s CEO Bernard Looney largely admitted the same thing. The COVID-19 pandemic could entrench certain societal changes – more teleworking, less commuting, less flying – that could permanently erode a portion of consumption. “It’s not going to make oil more in demand. It’s gotten more likely [oil will] be less in demand,” Looney said in an interview with the FT

“I don’t think we know how this is going to play out. I certainly don't know,” Looney said. “Could it be peak oil? Possibly. Possibly. I would not write that off.”

Not everyone agrees. ExxonMobil’s chief executive Darren Woods recently said that the long-term trends “have not changed.” 

A new study from IHS Markit also sees oil demand mostly returning to “normal” by the end of 2021. “It may be hard to comprehend now. But barring a second wave of the pandemic, nearly all pre-COVID demand could return by the second half of 2021,” Roger Diwan, vice president of financial services at IHS Markit, said in a statement. The firm sees oil demand rising to 96-98 percent of pre-coronavirus levels by the second half of next year. 

Related: BP Boss: We May Have Already Hit Peak Oil Demand

“If that transpires it could even lead to a market squeeze in the medium-term as supply destruction hinders the ability of supply to keep up with recovering demand,” Diwan added.

A separate report from the Oxford Institute for Energy Studies sees something similar. The report eyes a supply deficit as soon as the third quarter of 1.5 mb/d, on the back of severe supply curtailments and a rebound in demand. The report says the market could be undersupplied in 2021 by as much as 5 mb/d. But the inventory overhang means that Brent trades in the $40 to $50-per-barrel range for most of next year.

The Oxford report also sees demand mostly arriving back at pre-pandemic levels at the end of 2021. 

The problem with that notion is that a second wave of coronavirus infections is completely plausible, perhaps even likely (something both the IHS and the Oxford reports admit are big uncertainties). Time will tell. 

But the permanent changes in some behaviors, along with the ongoing market share gains for electric vehicles, go beyond oil market cycles. If demand does return, and boom follows bust, the shift to cleaner energy will only accelerate, and that’s before even considering any green stimulus measures now under consideration. 

One important issue that the Oxford report raises is how Saudi Arabia responds after the immediate crisis subsides. With the prospect of peak demand looming, there are “advantages” for Saudi Arabia if it pursues a high-volume/lower price strategy, the Oxford study says. That is, Saudi Arabia may want to ramp up production in the years ahead in order to monetize its remaining reserves as demand peaks and begins to decline. 


Cutting by too much in an effort to push prices to $50 per barrel or above would clear the way for a return of U.S. shale. Better to keep the market well supplied, capture more market share, and box out a rebound in shale drilling. 

Other analysts agree. “Will OPEC+ then hold on to production cuts in order to opt for price rather than volume once the oil price moves back to $50/bl thus once again chase the oil price to $60/bl and $70/bl by holding back supply?” Bjarne Schieldrop of SEB wrote in a report. “If so, this would again give preference to shale oil volume rebound in exchange for a higher oil price to OPEC+.”

By Nick Cunningham of Oilprice.com

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  • Mamdouh Salameh on May 13 2020 said:
    Global oil demand is very far away from peak despite recent suggestions by the CEOs of BP and Royal Dutch Shell. The demand destruction inflicted on the global oil market by the coronavirus outbreak has nothing whatsoever to do with peak oil demand. I will explain my reasoning.

    The world’s population of 7.8 billion were consuming in January this year 100 million barrels a day (mbd). The onset of the outbreak may have kept at least half of the world population in a global lockdown and quarantines thus cutting global oil demand by an estimated 50 mbd or 50%, hence the current destruction of the global oil demand. To underline my point, China’s crude oil imports in the first four months of 2020 averaged 10.11 mbd and were slightly higher than the same period of 2019.

    Soon we will see a new cycle of oil prices and global demand underpinned by the gradual easing of the global lockdown, the implementation of OPEC+-led production cuts and China’s bouncing back at full speed with oil prices hitting $40-$50 a barrel in the second half of this year and touching $60 early 2021. Still, it will take global oil demand until the end of 2021 before it recovers to 2019 levels.

    The claim by the Shell CEO about peak oil has preceded the cutting of dividends by Shell for the first time since 1945 and it could also herald the cutting of dividends by BP following in the footsteps of both Shell and Equinor.

    Once global demand accelerates, Saudi Arabia will be aiming for higher prices in preference to market share for two reasons. The first is that it will be needing badly to replenish its financial reserves and also cut budget deficit drastically. The second reason is that to aim for market share, Saudi Arabia will have to dip into its stored oil and once this is depleted it will not be able to take advantage of higher prices once they start to surge. Saudi Arabia can at best produce some 8.0-9.0 mbd with another 700,000 b/d to 1.0 mbd coming from storage. Current Saudi production comes from five giant but aging and fast-depleting oilfields discovered more than 70 years ago.

    There will be no peak oil demand throughout the 21st century and far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Maxander on May 13 2020 said:
    It is not post Cotonavirus period yet. Still 60% of developed & emerging world is under lockdown.
    For e.g. In India, passenger vehicles constitute 25-30% of fuel demand while commercial transport vehicles constitute approx. 70-75% of fuel demand. Nearly 90% Passenger vehicle & 70% of transportation vehicles are still under lockdown. So you can not really say right now that demand has started to move up entirely.
    I think post Coronavirus period, demand for fuel will surge beyond once imagination & overall demand for crude oil will be 105 mn bpd for some 2,3 months before it cools down further below 100 mn bpd to 95-97 mn bpd.
  • Bill Simpson on May 13 2020 said:
    If this COVID-19 virus causes another Great Depression, which at this point is a coin toss, demand for oil may never exceed what was produced in 2019. The main reasons will be the spread of poverty, the manufacture of more and more electric vehicles, and the higher mileage standards being adopted for new vehicles. Many new vehicles use 35% of the fuel cars used 50 years ago. That efficiency trend cannot go much further, unless they start building all aluminum cars and pickups, so as to lighten them a lot.
    Unfortunately, aluminum is an expensive to produce metal due to the large amount of electricity needed to refine it. The only way to lower the price of aluminum a lot would be to substantially lower the price of electricity by developing a new type of nuclear reactor which would be significantly cheaper to build. That is absolutely possible, but is not likely to happen for at least another 15 years. Nuclear reactors which burn nuclear waste are possible. Studies have indicated that the existing nuclear waste could power the entire world for several hundred years, using such reactors. That is because spent fuel from a conventional nuclear reactor is nowhere near out of nuclear energy. The nuclear waste still contains an unimaginable amount of potential nuclear energy.
    The speed of light squared in the formula E = mc^2 is an enormous number. Even in the most efficient nuclear bomb, only a few percent of the matter is transformed into energy. The rest gets blown apart before it can react. But a few percent of the matter transforming into energy is enough to vaporize millions of tons of rock in less than a second. THAT is what you call power! And you can carry the plutonium core of an atomic bomb in your hand. Nuclear energy has enormous potential. It will eventually make a comeback. The potential energy it can produce is just too great to ignore forever. And the fossil fuels are finite. That is a big, big problem.
    So if we could significantly lower the cost of electricity, aluminum would become the dominant metal we use. Steel would still be used due to its great strength and ease of welding, but most consumer products would be made mostly of aluminum. And titanium would no longer be a rarely used metal. Much cheaper electricity from new nuclear would transform the world.
  • Bob Forbes on May 13 2020 said:
    It never peaks or troughs. It’s a steadily increasing thirst that will never end. The world runs on oil, and always will. Take oil away and we will freeze to death and have to hunt and scavenge for food, same as they did before oil arrived. No matter what the teenage children tell us. Oil is going nowhere. Stock up while it’s cheap as when it comes back the next boom will be the biggest boom we have seen in our entire generation. $100 to $150 is certainly very possible.
  • Craig Anderson on May 13 2020 said:
    When you peel the political speak out of the oil executives comments, the real conclusion is that they are in the oil business and will continue to be in the oil business for a couple of additional centuries..

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