Even though the global economy and oil markets are recovering from a historic collapse in demand caused by the coronavirus (Covid-19) pandemic in 2020, there may well be no return to “normal” for oil markets in the post-Covid era, according to a report by the International Energy Agency (IEA) on Wednesday.
Rapid behavioral changes, including working from home, less business and leisure air travel, as well as new government policy settings to tackle a low-carbon energy transition will give way to a lower oil demand outlook, the IEA said in its Oil 2021 report.
The agency said global oil demand, still reeling from the effects of the pandemic, is unlikely to catch up with its pre-Covid trajectory.
Oil demand in 2020 was nearly 9 million barrels per day (bpd) below the level seen in 2019 and is not expected to return to that level before 2023, it said, adding that by 2026, global oil consumption is projected to reach 104.1 million bpd, representing an increase of 4.4 million bpd, or 0.6%, from 2019 levels.
“Achieving an orderly transition away from oil is essential to meet climate goals, but it will require major policy changes from governments as well as accelerated behavioral changes. Without that, global oil demand is set to increase every year between now and 2026,” Fatih Birol, the IEA’s executive director, was quoted as saying in the report.
In addition to policy shifts of governments, increased teleworking, greater recycling and reduced business travel may reduce oil use by as much as 5.6 million bpd by 2026, which would mean that global oil demand never recovers to pre-pandemic levels.
According to the IEA report’s base case scenario, China, India and other Asian economies will dominate growth in global oil demand, accounting for 90% of the increase between 2019 and 2026. However, demand in many advanced economies, where vehicle ownership and oil use per capita are much higher, is not expected to return to pre-crisis levels.
In the OECD countries, prolonged and repeated lockdowns, strict social distancing measures, including widespread teleworking, and a near halt to international travel caused demand to plunge by 5.6 million bpd in 2020.
As a larger share of the population gets vaccinated, the agency forecasts that restrictions will ease, allowing demand to rebound in the near term.
According to the report, the aviation sector was the most affected by the pandemic and will continue to struggle.
“Jet fuel consumption will only return to 2019 levels by 2024 as travel restrictions, changing travel habits, and the relatively slow progress of vaccinations in low-income economies cap its recovery. The proliferation of online meetings and conferences, along with cost cuttings by companies, are likely to permanently dent business travel,” it said.
Pointing to actions taken to implement the energy transition, the agency said demand growth would slow down after a recovery period that will last until 2023.
“Strong demand growth in developing economies, however, will more than offset a contraction in high-income ones,” it added.
By Sibel Morrow