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The oil market will take a lasting hit from the coronavirus, and demand will take years to recover to a lower level, the International Energy Agency said.
After an unprecedented 8% drop this year, global oil consumption will return to pre-crisis levels in 2023, provided Covid-19 is brought under control next year, the Paris-based agency said on Tuesday.
Even in that case, which is the most optimistic scenario for oil considered by the IEA, the pandemic has a lasting impact. The IEA reinforced its view that global demand for oil will stabilize around 2030, reaching lower levels than expected last year.
“The era of growth in global oil demand will come to an end in the next decade,” IEA Executive Director Fatih Birol said in the agency’s annual World Energy Outlook.
It’s a stronger tone than last year’s report, which emphasized that there was “no definitive peak” on the horizon. If recovery from the pandemic is slower and there is lasting economic damage, oil demand may only have a couple of years to grow, the IEA said.
Stabilizing
The agency’s perspective, which advises most major economies, comes as oil majors like BP Plc and Royal Dutch Shell Plc acknowledge that the combination of the pandemic and the drastic changes needed to avoid a climate crisis will have profound consequences. for your assets and businesses. Models.
Long-term growth in oil demand will be tamed by the shift to more efficient or electric vehicles, the IEA predicted. Consumption will increase by about 750,000 barrels per day each year to reach 103.2 million per day in 2030.
That’s roughly 2 million a day less than predicted in last year’s report.
The increase will be entirely concentrated in developing countries, especially India, and will be dominated by raw materials for plastics and other petrochemicals, rather than fuel for road transport. After 2030, annual growth will slow to just 100,000 barrels per day.
Worst of cases
If prolonged coronavirus outbreaks impede economic recovery, resulting in a global economy that is 10% smaller in 2030 than current projections, then the outlook for oil is even bleaker.
Oil consumption would not recover to pre-virus levels until “the latter part of the 2020s” in this scenario, stabilizing shortly thereafter at just under 100 million barrels per day, the agency said.
The prospects of the IEA and international oil companies make the view of the Organization of the Petroleum Exporting Countries, which last week projected that oil demand will continue to grow for another two decades, an outlier.
The cartel also predicts that oil consumption will recover to pre-pandemic levels in 2022, a year ahead of the IEA.
Big investments
Despite the subdued consumption prospects, the global oil industry nonetheless faces a challenge in meeting projected demand.
Even after 2030, it will take about $ 390 billion of investment each year to find new supplies to make up for declining production in aging oil fields, the IEA said.
Prices should rebound to $ 75 a barrel by the end of the decade, from current levels just above $ 40, as demand recovers, encouraging drillers to spend again.
The US shale industry, which provided much of the world’s new oil supplies in the past decade, will rebound to pre-crisis levels in 2022. The United States is expected to remain the largest producer of oil. oil until 2040. However, the shale sector does not reward investors and relying on debt means that “there is a high degree of uncertainty” about its future performance.
“Capital markets are not in the mood to step in and fund the next wave of projects,” the agency warned. “It is not clear if this investment will come in time.”
OPEC members also face a difficult period as depleted revenues put pressure on national budgets, and some of the growth that had been anticipated in Nigeria, Iraq and Angola is now expected to be lost.
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