Oil's post-pandemic global future

Global oil demand is slated to rise above pre-pandemic levels over the next few years but nonetheless remain lower than it would have been absent COVID-19's emergence, a new International Energy Agency analysis project.

Why it matters: The pandemic is certainly having a lasting effect — its mid-decade demand estimate is 2.5 million barrels per day lower than the growth level expected before the crisis.

• Global gasoline consumption will probably never reach pre-pandemic levels.
• Yet IEA's estimate also shows that oil demand will still reach fresh records, a sign that nations have not yet responded to the pandemic with the kinds of clean energy policies that IEA and others had hoped.

What they're saying: "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," IEA head Fatih Birol said.

What we're watching: The report lays out a basket of policies that could alter the underlying trajectory.

• That means the ones Birol name-checked above, alongside more telework and less business travel, and more recycling that lessens oil growth in the petrochemical sector.
• All that together could displace 5.6 million barrels per day by 2026, "which would mean that oil demand never gets back to pre-crisis levels."

The big picture: The report compares the mid-decade forecasts to the global oil consumption path that would be consistent with the Paris climate agreement.

• The "base case" sees demand 3.5 million barrels per day higher in 2025 than 2019's levels.
• But under IEA's Paris-aligned "sustainable development scenario," oil demand would need to decline by 3 million barrels per day over the stretch.

Of note: All the demand growth they project through the mid-2020s comes from non-OECD nations, with demand in Asia rising strongly.

• On the production side, IEA sees several forces combining to limit the U.S. bounce-back from last year's declines, with only "modest growth" expected over the next half-decade.
• There's less cheap capital available, industry investment is more conservative, climate pressures are greater and new Biden administration regulations are expected.
• "The slowdown in US production growth clears the way for OPEC+ to fill much of the supply gap as it taps into its spare capacity," IEA notes.

What we're reading: Speaking of oil, the Financial Times summarizes IEA's separate monthly report out this morning: "The expectation of Wall Street banks that oil has entered a new and sustained period of dramatic price rises is misguided, said the [IEA] on Wednesday."