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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Will Low Prices Save Long-Term Oil Demand?

Gasoline pump

It has already become crystal clear to analysts and the oil industry that global oil demand will not recover to pre-pandemic levels next year. 

Some forecasters and top executives at the world’s largest oil companies are not confident that oil demand will return to the pre-crisis levels, ever. 

Even OPEC is said to be quietly preparing to face lower demand growth than previously expected. A key concern at OPEC is whether the COVID-19 crisis has significantly accelerated the timeline of peak oil demand, or whether we are already past that peak, OPEC officials and sources close to OPEC told Reuters last month.   

While the camp of those arguing that oil demand is set for a strategic structural shift downward is growing, there’s still the school of thought that maintains that demand will continue to be a function of the economy and prices. And low oil prices will help oil demand growth when the world puts the pandemic behind it, Michael Lynch, an expert on petroleum economics and energy policy, writes in Forbes In many of the previous bust cycles in oil, oil demand growth has accelerated after major collapses in prices, Lynch has estimated. 

Economic growth has always been a driver of oil demand, but this time around, the economies won’t return to growth until next year, according to current projections, and that’s only if a massive second coronavirus wave doesn’t further hit economies and employment in major oil-consuming nations. 

Related: Why We Won’t See An Oil War In The South China Sea

Low oil prices will be a boon to consumers to drive more, who will be paying less to fill up their tanks. Consumers also have markedly moved away from using public transportation, preferring instead the safety of their own vehicles. 

Yet, the pandemic this year poses the question: will low gasoline prices will be enough to incentivize overall oil demand, considering the fact that jet fuel demand is expected to continue to be a drag on oil demand for at least another two years?   

Analysts have already largely ruled out a V-shaped recovery in oil demand. The current uncertainty in the pandemic that is still far from being under control in many parts of the world makes any current estimates about longer-term demand unreliable. 

“And everybody who can tell you certain things with certainty, I think you have to take with a great pinch of salt. And of course, we don’t know how this pandemic is going to work out. I hope it will work out well,” Shell’s chief executive Ben van Beurden said on the supermajor’s Q2 earnings call last week. 

“Demand will take a long time to recover if it recovers at all,” van Beurden said, noting that aviation fuel demand will continue to stay down “for some time to come.”  

Even with low oil prices, consumers preferring their personal vehicles to public transportation may not be enough to save long-term demand. 

The COVID-19 pandemic has served as a wake-up call to many governments, especially in Europe, to pledge greener recovery from the crisis by investing more in renewable energy and electric vehicles (EVs) use. Increased government support of green technologies could displace higher volumes of oil consumption more quickly than previously expected. 

In one of three future scenarios for long-term oil demand, Wood Mackenzie estimates that the ‘Greener growth’ scenario could lead to oil demand plateauing in the 2020s, before starting to fall steeply in the 2030s. In reality, the future of oil demand will likely be a mix of three scenarios, the ‘full recovery scenario’, the ‘go it alone’ scenario with a deeper downturn and slower trend growth thereafter, and the ‘greener growth’ scenario. 

“Reality is likely to mix and match different elements from these scenarios. Some regions will push hard on the accelerator for the energy transition, while others focus more on developing domestic manufacturing industries and protecting existing energy producers. But most of the likely changes work in the same direction: towards weaker oil demand growth,” WoodMac says.

The world hasn’t seen peak oil demand yet, Fatih Birol, Executive Director of the International Energy Agency (IEA), said in May, expecting that sooner or later, oil consumption would return to the pre-crisis levels and rise above that.   


Some oil majors, including Shell and BP, are not so sure about demand recovering to pre-pandemic levels. And those two majors saw COVID-19 as a wake-up call and an opportunity to fast-track positioning themselves for business in the energy transition and start calling themselves energy – instead of oil – companies. 

As far as long-term oil demand is concerned, uncertainty clouds any current projections. As Shell’s van Beurden said on the call last week: 

“And it may well take 2021, of course, to get back to where we were. What happens after that is, I think, much more difficult to predict.” 

By Tsvetana Paraskova for Oilprice.com

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