London — Global oil demand may struggle to fully bounce back from the COVID-19 pandemic any time soon but will likely be constrained more by the pace of economic recovery than a sudden slide in the world's dependence on fossil fuels, according to BP's chief economist Spencer Dale.
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Even when global lockdowns to contain the pandemic are lifted, some market watchers have speculated that a shift to more home-based working, a sharp drop in business travel and other permanent changes in energy use will result in a major hit to near-term oil demand.
Any fall in the world's oil intensity after the lockdowns, although still unclear, will be overshadowed by the ability of the global economy to reboot itself, Dale said in an interview with IHS Markit.
"I think the factor that's going to dominate oil demand and everything else is how much can the economy recover," he said. "In a world where there's not a vaccine and you're still having to do social distancing... my hunch is... it's not the oil intensity of GDP it's just the level of GDP and how much GDP will come back."
Most market watchers estimate that the global economy will shrink by around 5% this year, the first contraction in decades and some three or four times worse the impact of 2008-2009 financial crisis. Last week, the head of the International Monetary Fund Kristalina Georgieva said the global economy will likely take longer to recover from coronavirus than initially expected with a full economic recovery next year still unclear.
CHANGING DEMAND PATTERNS
Although now recovering, global oil demand likely collapsed by up to 30 million b/d, or 30%, during peak lockdowns in April, according to most oil analysts. While the massive demand collapse was historically unprecedented, Dale noted that the world was still consuming about 70 million b/d, demonstrating a level of oil demand resilience that might not have been expected.
"It's worth remembering that even in a world which is shut down and streets were deserted and people were kept inside their houses, the world was still consuming in the order of... 70-75 million b/d of oil," he said.
Dale said it also remains unclear whether social behavior changes post-pandemic might mitigate any slide in oil intensity from less travel. More home deliveries of food and goods in addition to greater private car use to avoid public transport could push demand in the other direction, he said.
Another big question mark over the pace of economic recovery remains key emerging markets such as Brazil, India, Russia, and Africa, where the pandemic is far from under control, he said.
"The impact that COVID has on those economies is critical both because of the nature of their health systems and because the ability of governments to support with fiscal policies is far more vulnerable, so I think that's the other big unknown."
Looking further out, Dale said he sees "big forces pushing in both directions" in terms of the outlook for long-term oil demand post-pandemic.
Massive levels of public debt for fiscal support programs could distract policy makers from pushing ahead with decarbonization and climate change agendas as they focus more on domestic resilience.
The pace of future globalization and expansion of international trade is also in question, he said, with more countries potential turning inwards in terms of their policies and spending priorities.
"What COVID has done is encouraged people to place more weight on resilience and less on optimization and stretching their supply chains," he said.
"On the other side ... COVID has reminded all of us about the fragility of the planet and the way where we're living. It's reminded people about the nature of global threats and the fact that global threats don't recognize national borders," he said.
Some countries may also start to worry more about energy security, focusing on locally produced energy rather than imported sources, he said. As a result, oil and gas imports into major consuming countries such as China and India could fall sharply and they push harder into renewable energy or local coal.
In its most recent long-term energy outlook, published in February last year, BP forecast that global liquids demand could peak by 2035 at around 108 million b/d as more of the world's energy needs are met by booming renewable fuels.