Will Oil Demand Ever Reach Pre-Pandemic Levels?

The latest predictions from Citigroup paint a dire picture for the global energy industry, with analysts warning demand for refined oil may never recover to pre-pandemic levels. According to experts at the American multinational investment bank, the demand slump triggered by the coronavirus outbreak will have a devastating impact on worldwide consumption.

“Oil product demand growth will falter significantly, change its contours and never return to pre-covid-19 rates of growth,” reads the report issued by Citigroup.

Travel restrictions set to drive demand slump

With many experts warning international travel could be off the cards until 2023, demand for jet fuel is set to tumble. The COVID-19 pandemic has also forced companies to reassess the need for employee travel, instead resorting to digital meetings using platforms such as Skype and Zoom.

International travel isn’t the only industry set to take a hit, with domestic travel also limited in the face of local restrictions and lockdowns. The United States is currently bracing for a surge in COVID-19 cases following July 4 celebrations, with Melbourne also forced back into lockdown for six weeks in response to high levels of community transmission. In the report issued by Citigroup, analysts say situations such as these are just some of the powerful forces at play that will prevent oil demand from reaching pre-pandemic levels.

Citigroup says triple-figure oil a “fantasy”

The report comes in the wake of a warning issued by Royal Dutch Shell predicting a significant decrease in the value of its assets. While analysts had hoped oil could recover to at least US$60 a barrel, Citigroup says US$45 is a more realistic price point. Referring to hopes oil will rebound to the US$100 per barrel mark, Citigroup says this prediction “has far more fantasy than reality at its heart.”

In April, the World Oil Market report released by the International Energy Agency (IEA) warned oil demand was down by 29%. By the end of 2020, the IEA predicts a 9% year-on-year decrease. As well as a sharp decrease in demand, experts warn supply issues could emerge. Tensions are mounting between Saudi Arabia and fellow OPEC members, with the Kingdom threatening a price war if production quotas outlined by the OPEC+ agreement aren’t met. While total OPEC production recently slumped to the lowest levels seen in 30 years, there are fears wiping 9.7 million bpd off the market won’t be enough to coax oil back to US$65 a barrel levels, let along triple figures.

Despite a slump in consumption, environmental concerns remain front of mind for the oil and gas industry. To find out more about how the sector is working to minimise leaks during extraction, storage and transport don’t miss Methane monitoring is a ’must.’