By on March 19, 2021

 

Oil

Oil 2021, an analysis by the International Energy Agency (IEA), explains why the pandemic caused the collapse in demand for oil in 2020, and why it may never return to ‘normal’.

Our behaviors as individuals and nations have changed due to COVID-19, and the restrictions placed on us during this time. There has also been a movement within governments around the world to accelerate the lowering of carbon emissions, causing a huge drop in oil demand over the next six years. This in turn has caused turmoil among oil-producing countries and companies, who need to make decisions regarding any new exploration and tapping existing resources that may only add to the surplus they have already.

There is an inventory surplus built up over the past year that is being worked off, and global oil stocks, minus any strategic reserves, will gradually return to pre-pandemic levels in 2021. Meanwhile, governments are looking at the recovery as a catalyst to lower our carbon footprint, especially if said governments do follow through with stricter policies that hasten our implementation of so-called clean energy.

With this in mind, oil producing-countries and companies are in a quandary. Leave resources sitting in the ground, or create new capacity that may sit idle for however long? Let’s say you and me, and motorists around the world, don’t buy into this, and all these experts fail to see the demand for oil and gasoline on the rise once again. This would leave the producers in a shortfall, and we would have another oil crisis, with geopolitical ramifications, and supply shortages to follow.

Oil

Globally, oil demand is forecast to be a record 9.3 million barrels per day (mb/d) lower in 2020 than it was in 2019, as COVID-19 brought mobility to a screeching halt in 187 countries. The second half of 2020 should show a gradual recovery, as vaccinations increase and our activity levels rise, but demand is still not expected to reach pre-pandemic levels before years end.

What we can’t account for is the speed of the recovery, and how uneven it will be geographically, between sectors, and for various products. Gasoline demand is unlikely to return to 2019 levels, as fuel efficiency and the movement towards more electric vehicles continues to offset any growth in consumption. Even as we see tens of thousands of Americans returning to the skies, aviation fuels are slowly expected to return to 2019 levels by 2024, and continuation and growth of online meetings could affect business travel indefinitely.

Oil

Investment in the oil industry and expansion plans have been curtailed, as companies spent 1/3 less at the start of 2020, and 30-percent less than they had in 2019. In 2021, only a marginal rise in investment is expected. Supply growth worldwide is being constrained, with spending cuts and project delays. World oil production capacity has been reset to 5 mb/d by 2026, and unless there’s action by developed countries, we’ll be 5.2 mb/d short by 2026 to meet the demand rebound.

Half of the increase is expected to come from the Middle East, primarily from existing capacity. Sanctions against Iran may require Saudi Arabia, Iraq, the UAE, and Kuwait, to produce oil at or near their record highs. This is a change from when the U.S. dominated world supply growth, and our investment and activity level will only increase when prices rise. The outlook for the oil industry is for spending discipline, better cash flow, deleveraging or reducing debt, and increasing returns for their investors.

According to the IEA, passenger car oil usage will peak in the late 202os, and during the 2030s, increase an average of only 0.1 mb/d a year, with no peak overall due to continued use by the petrochemical, trucking, shipping, and aviation industries. However, a shift in policies will lead to a peak in global oil demand in the next few years, as it drops more than 50 percent in developed nations between 2018-2040, and 10 percent in developing countries.

[Images: International Energy Agency]

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19 Comments on “Oil 2021 Outlook – Oversupply and Lower Demand...”


  • avatar
    multicam

    Good. Keep it cheap so I can keep driving my ICE-powered car. Not that supply or demand will prevent the government from making it prohibitively expensive first… so thanks in advance for that

  • avatar
    ToolGuy

    I’m not sure they factored in 75 deliveries a day to my house from Amazon et al.

  • avatar
    stuki

    Pray tell what the babbling yahoos consider, as always entirely arbitrarily , “oversupply” this time. Talk about economically illiterate nonsense.

    Unless supply is literally so great that costs go negative, as in people being willing to pay to avoid getting more oil (it happened, in a very limited setting, last spring….), there is no such thing as economically meaningful “oversupply.” Just the IEA talking their, meaning big producers’, book. Most people and organizations, want oil to be as cheap as possible. Only producers benefit from prices above a buck a barrel.

    • 0 avatar
      Tele Vision

      @stuki

      *Most people and organizations, want oil to be as cheap as possible. Only producers benefit from prices above a buck a barrel.*

      Don’t forget governments – they love to tax fuel at every step of production. Cheap gas means less of our money goes into their coffers. Don’t worry, though – they’ll find a way to make it up.

      • 0 avatar
        dantes_inferno

        >Cheap gas means less of our money goes into their coffers. Don’t worry, though – they’ll find a way to make it up.

        The crystal ball envisions increased “fees” on each EV sold and driven.

    • 0 avatar
      PandaBear

      It means they borrowed money to build the oil well and other infrastructure, signed contracts to pay for a certain amount, that they cannot just walk away without losing even more money.

      That’s what oversupply and losing money means. You ever learned what fixed cost means? It cost $20 to pump oil out, and it does cost money to store oil somewhere after pumping them out.

      So yeah, you are an idiot.

  • avatar

    We need to make oil and gas expensive again because mother Russia relies on us. Make cracking illegal!

  • avatar
    Lou_BC

    The price of fuel has been climbing lately.

  • avatar
    Jeff S

    Demand is already increasing as are prices. Increased oil prices along with more complex technology that will make ICE vehicles more expensive making EVs more viable especially if battery technology makes less expensive and smaller batteries and the infrastructure for charging increases. Turbo charged 3 and 4 cylinder engines with increase CVTs and multi geared automatics will decrease the longevity of ICE vehicles and increase the cost of repairs.

    I have reduced the number of miles I put on my vehicles since COVID-19 combining more trips and ordering more on line. Telework has also reduced the amount of driving that I do. I doubt I will increase the amount of driving that I do after COVID but I might take a few more trips but even then that will not increase my miles significantly. I will hold onto my current vehicles longer and probably postpone any vehicle purchases until there is more charging infrastructure and EVs become more affordable.

  • avatar
    rvakenya

    Doesn’t this article read like the automotive version of the billionaires shorting Game Stop? Nobody wants oil anymore and the peak is past? Yet the price of gas keeps going up, at least half the nation (Northern heavy Democrat states anyway) are still in isolation, and I know only one person in my circle of family and friends who bought an electric vehicle. My logic tells me Americans are going to travel like crazy in the next year and burn some gas/jet fuel. Electric cars will sell but it will be a decade before they make significant inroads with rural America likely never accepting them.

  • avatar
    Jeff S

    In the meantime gas will go up and the automakers will introduce more vehicles with turbo 3s and 4s with CVTs. Full size trucks will go to more turbo V6s and in the case of the Chevy Silverado a turbo 4 will be the base engine. This will be enough to make me an EV convert. I wonder how many others will feel the same way.

    • 0 avatar
      Superdessucke

      The days of the gas-guzzling honkin’ V8 are almost surely numbered. Stellantis, which sounds like the name of a bad-guy-corporation in a big budget action movie, may lead to charge. Before you know it they will be making small electric Chargers ala the Charger 2.2 and maybe even voting machines. The American working class cannot catch a break!

  • avatar
    Jeff S

    The infrastructure for EVs will get built and within a decade we will likely have noticeable infrastructure for EVs within major metropolitan areas. Infrastructure for EVs will take longer for less populated areas. It will cost a lot of money for new infrastructure but then the US spent a lot to develop the interstate system over decades. Nothing is free. As for charging additional tax for EVs that is already happening in states like Ohio to cover the cost of roads.

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