Global oil demand has picked up strongly after the worst demand shock experienced last year, and it is expected to rise consistently through to 2026, new IEA report notes.
According to the report, this trajectory is tipped to continue, and could peak earlier than anticipated. This may happen if governments’ focus on clean energy turns into stronger policies and behavioural changes induced by the pandemic.
Using a base case scenario, reflecting current policy settings, oil demand is set to rise to104 million barrels a day by 2026. This figure is up 4 percent from 2019 levels, the report notes.
Dr Fatih Birol, the IEA’s Executive Director asserted that:
“The Covid-19 crisis caused a historic decline in global oil demand – but not necessarily a lasting one. 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 behavioural changes. Without that, global oil demand is set to increase every year between now and 2026.
“For the world’s oil demand to peak anytime soon, significant action is needed immediately to improve fuel efficiency standards, boost electric vehicle sales and curb oil use in the power sector.”
This notwithstanding, these actions together with other essential elements such as increased teleworking, more recycling and reduced business travel could reduce oil use by as much as 5.6 mb/d by 2026.
Based on the report’s base case, Asia will continue to dominate growth in global oil demand. This accounts for 90 percent of the increase between 2019 and 2026.
By contrast, demand in a number of advanced economies, where vehicle ownership and oil use per capita are much higher, there are no expectations for such regions to return to pre-crisis levels.
Supply side Effects
On the supply side, the increased uncertainty over the outlook of the oil market has thrown producers into a dilemma. As a result, investment decisions made today could either bring on too much capacity left unused or too little oil to meet demand, the report says.
According to the report, expectations are that only a marginal rise in global upstream investment this year as compared with investments in 2020. Last year’s investments saw operators spend one-third less than planned at the start of the year.
The report further notes that global oil production capacity will increase by 5 mb/d by 2026. Meanwhile the deep contraction in demand last year has resulted in a buffer in oil production capacity by about 9mb/d. This capacity is able to keep global markets comfortable in the near term.
Achieving rising oil demand through to 2026
The report underscores the need for a rise in oil supply by 10mb/d by 2026. This is for the purpose of matching growth in oil demand to 2026.
According to the report, expectations are that the Middle East, led by Saudi Arabia, will provide half that increase. This will largely drawn from exiting shut-in capacity. This expanding market share is likely to trigger a dramatic shift from past years when the United States dominated growth.
US supply growth will resume as investment and activity levels pick up. Yet any increase is unlikely to match the lofty levels seen in recent years, the report says.
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