BAKU, Azerbaijan, Oct.22
By Leman Zeynalova – Trend:
Oil consumption will recover quickly as quarantine measures are relaxed, Trend reports citing Capital Economics, UK-based research and consulting company.
“In the last five years or so, the debate has flipped to the timing of “peak demand”. Concerns about climate change have prompted efforts to reduce fossil fuel use. There is now a consensus that the transport sector will be fully electrified at some stage and that we need to find alternatives to oil-based plastic. Nonetheless, oil demand had still been growing steadily prior to the pandemic.
“The majority of growth in demand was in China and emerging countries (EMs), on the back of rising per capita incomes and car ownership. However, the containment measures taken to combat the virus led to an unprecedented collapse in oil consumption. Of course, it will recover quickly as quarantine measures are relaxed. However, we think that the virus experience will add additional momentum to some ongoing behavioural shifts, such as homeworking, that will have negative implications for oil demand in the medium term. There has even been talk that oil demand peaked in 2019 and that it is all downhill from here.
“We still think that oil demand has yet to peak for two key reasons. First, there is a positive historical relationship between oil demand growth and global economic growth.
“As the global economic recovery takes hold in 2021, we expect that oil consumption growth will revive and eventually return to pre-virus levels, though it may not be until 2023. That said, much depends on the nature of GDP growth going forward. If it is focused on the service sector, for example, it will be less oil intensive than in the past. After all, the oil intensity of GDP growth in developed countries has been in decline since the late 1970s. But even in these high-income countries with falling oil intensity, a pick-up in GDP growth will still translate into an increase in oil demand. We think this is particularly the case in North America.
“Second, emerging economies still have scope to increase oil consumption. In fact, the current key driver of oil demand growth, China, has some way to go if it wants to reach developed economy levels of income and oil consumption per capita. India, the world’s third largest oil consumer, is further behind. Even looking at the consumption profiles of countries with a high share of EVs in new car sales, such as in northern Europe, leaves room for emerging economies to increase oil demand,” the company said.
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