BP Plc said that the era of Oil demand growth is now over , in a report released on Monday. The most bullish scenario they had in terms of forward looking Oil output has been visualised below (Chart from Bloomberg, data from BP). Having a looking between 2017-2025, demand forecasts appear to be very flat according to BP, with the market focus transitioning to ‘greener energies’.
This chart as well as the bold statement made by BP has been met with backlash, many senior officials and well-known bodies such as OPEC have indicated that there will be decades of oil consumption growth , especially with populations rising and middle class groups expanding.
China have been a clear denominator in the expansion of global energy markets where it contributed the most in demand terms to all sources of energy other than natural gas, to which the U.S. only just exceeded China. However even with this level of support from China, the BP report emphasises the fact that the growth of fuels lagged behind their respective 10-year averages in 2019 , whilst demand for renewable’s surged a noticeable 41%, with renewable energy surpassing nuclear energy for the first time in history.
Weaknesses In Demand Data
Oil consumption data in 2019 was up by +0.9% , though this was below the 10-year average of 1.3% annually, as mentioned above, China was a key player contributing to this growth with +680,000 barrels a day in additional demand. Though when looking what emerging markets/developing countries OECD demand slipped 290,000 barrels a day, for the first time since 2014. Though when analysing this data by product specific demand, BP is right in indicating that the world is moving towards green energy more. This is evidenced by ethane & LPG (liquefied petroleum gas) consumption which rose the highest at 380,000 barrels a day, the use of Naphtha as a petrochemical substitute has contributed towards this with it’s reduced impact on greenhouse emissions.
More over IMO 2020 , an act which objectively enforces the sulphur content within a barrel of oil to be reduced by around 2-3%. When processing crude, the sulphur within the oil is released and this causes acid rain , thus damaging the environment. As the market prepares for IMO 2020 to be enforced, demand for high sulphur content has reduced by 320,000 barrels a day.
In term of Oil output, the U.S. experienced the largest output increase , rising by 1.7 million barrels a day however this was still down from the 2.2 million barrels a day recorded in 2018. With respect to oil output, a similar story has also been painted with other main exporting countries, Canada output was recorded at 150,000 barrels a day with Brazil output increasing by 200,000 barrels a day, however both are still lagging behind their 2018/2017 output averages. Whilst demand is technically rising, demand growth is lagging , supporting BP’s take on greener energies. Though to forecast growth to be flat over the next 5 years is an overstep. There are external factors which has not been discounted into the data , such as reduced demand as a result of covid-19, a boom in shale production and geopolitics between the U.S. and China. The products we use on a daily basis contain a derivative of oil, from simple toothbrushes to clothing material , it would be very difficult to find a product that can be used as diversely as oil. Whilst there is certainly a growth demand for greener energies, I expect oil to remain consistent in line with economic growth.