Peak Oil? Has the Pandemic Changed the Way We Work & Live That Much?

BP noted in a statement Monday that the health crisis could have an “enduring impact on the global economy”, resulting in less demand for energy over a “sustained period”. As a result, the company reduced its forecast for Brent crude prices over the next three decades by 27% to $55 per barrel. The company expects that the world will emerge from the pandemic with an accelerated transition to a lower carbon, cleaner energy system in light of efforts to “build back better” for greater resilience in the local economies.

As the coronavirus pandemic sharply reduced demand for oil and gas – with factories closed, travel curtailed, and workers remaining at home – Brent crude price collapsed to its lowest level in over 20 years in April. Although that price has more than doubled since April, it is still down 42% from the end of 2019.

The International Energy Agency said last month that oil demand could drop by 9 million barrels a day this year on average, returning consumption to 2012 levels. While consumption is beginning to increase as stay-at-home restrictions ease, energy companies expect reduced consumption for a longer period of time. Some energy economy watchers think that global oil demand may never return to pre-pandemic levels.

So have we reached peak oil? Freedonia analysts think so. Our current composite forecasts have US refined oil product consumption in volume terms peaking in 2018.

Why might this change be more than temporary?

• Telecommuting will remain widespread, where possible, for the foreseeable future.
• Business and pleasure travel will remain down, partly due to ongoing quarantine procedures as well as individual reluctance to risk it, and partly as video conferencing becomes more entrenched as an alternative to in-person business meetings.
• Subsidies and other coronavirus economic support packages have, in some countries, included new environmental commitments and carbon reductions as conditions for such payments.

However, this doesn’t mean that there will be a quick and large-scale shift to renewables. This is still largely a demand-side issue at this point. Cheap oil – a situation we’re in right now – makes renewables less cost-competitive when there aren’t other incentives to make the switch.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including an expanding catalog of COVID-19 Economic Impact reports, which highlight how various industries are responding to the current crisis with a comparison to recent recessions. Freedonia Custom Research is also available for questions requiring tailored market intelligence.