Despite a bullish stance on the short-term future of oil demand, Goldman Sachs has a grimmer prediction for the longer-term future of the commodity: in a Bloomberg report, the investment banking major was quoted as expecting “anemic” demand for oil from the transport sector after 2025.
“Government policies driving higher efficiency gains and lower emissions have had the strongest bearing on road transport demand,” Goldman analysts said in the report. “Petrochemicals will become the new baseload for oil demand, driven by economic growth and rising consumption, especially in emerging markets.”
The transport sector is the largest consumer of crude oil, but the wider adoption of electric cars will undermine demand, according to Goldman Sachs, and it could peak by 2026. As for a return of demand to pre-pandemic levels, this will not happen at all, according to the investment bank.
In addition to rising electric vehicle sales, driven by tighter emissions regulation in Europe and the U.S., a permanent shift towards working from home for many in employment would also have a negative effect on oil demand, as 43 percent of oil consumption comes from passenger vehicles, the Bloomberg report noted.
Over the short term, however, Goldman is pretty bullish on oil. The bank said earlier this month it expected a strong rebound in oil demand over the summer, noting this would require OPEC to relax its production controls further and bring back another 2 million bpd in the third quarter. Seeing as Iran plans to boost its own production by that many barrels daily, however, the cartel may need to keep the caps, all else being equal.
As for prices, Goldman expects Brent to reach $75 per barrel in the third quarter thanks to the returning demand and to the brightening global economic outlook driven by government stimulus, notably in the United States.
By Irina Slav for Oilprice.com
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Goldman based its prediction on two assumptions. The first is that it expects anemic demand for oil from the transport system after 2025. The second is that wider adoption of electric vehicles (EVs) will undermine oil demand.
The first assumption is false because as long as the global economy is driven by oil and gas, the demand for oil will continue to grow in absolute terms because of rising world population and growing global GDP expected to reach 9.9 billion and $262.65 trillion respectively by 2050. Furthermore, there will neither be a post-oil era nor a peak oil demand throughout the 21st century and probably far beyond because there is no alternative as versatile as oil. China’s economy was reported to have grown by 18.1% in the first quarter of 2021 signalling that China’s demand for oil this year could match that rate as exemplified by China’s crude oil imports breaking all previous records. This is no anemic demand.
The second assumption has no legs to stand on. Despite daily media promotions and large government subsidies, total number of EVs and hybrid cars in the world doesn’t exceed 5 million out of 1.5 billion internal combustion engines (ICEs) or 033% currently according to US auto research. ICEs’ numbers are projected to reach 2.0 billion in 2025 and 2.79 billion by 2040. A wider introduction of EVs could only very slightly decelerate growth in global oil demand but it will never arrest it. Even 300 million EVs on the roads by 2026 which is an impossibility could only reduce global demand by 5.3%.
Global transport and the petrochemical industry will account for 73% and 15% of global oil demand by 2040 with the remaining 12% accounting for other uses.
Meanwhile, I project that global oil demand will return to pre-pandemic level of 101 million barrels a day (mbd) by the middle of this year with China compensating for any shortage in oil demand by air travel. Moreover, I project that Brent crude price will hit $70-$80 a barrel by the third quarter of 2021 and average $65 for the whole year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Investments are based on projections and assumptions so it is not strange there is difference in future outlooks. So something as basic as population growth projections vary in very significant ways depending on the institutions choices for parameters in their models. These have to be regular adjusted to the real numbers that evolve. At this point we have to adjust the idea that the population will continue to grow into the next century. In fact many new projections see the world population peak in the 2060’s and we are now at the point where we can talk about a population collapse on our planet. Many countries like Japan and China are projected to have only half its population left at the end of this century (that is 80 years). An older population will also drive less in their car.
If we want to understand this then oil can be hit this coming decades by a double whammy of both EV development and population decline in key markets. Goldman Sachs can be very right to predict peak oil demand so early this century.