Illustration: Eniola Odetunde/Axios

Here's a wild but no-longer-unthinkable idea: Is it possible that global oil demand will never again exceed pre-pandemic levels?

Why it matters: The timing of peak demand has big implications for carbon emissions, oil-producing nations and the industry.

  • Many prior analyses concluded that it's a rather remote horizon, ranging from the late 2020s to the 2040s or later, though needless to say there are lots of variables.

Driving the news: “Will demand ever go back to where it was? That is hard to say,” Shell CEO Ben van Beurden told Bloomberg late last week. He also said the odds of demand peaking this decade have risen.

Where it stands: Until recently the world used roughly 100 million barrels of oil per day.

  • But COVID-19 has crushed demand, with multiple analysts seeing a roughly 25%–30% decline or more at the height of the lockdowns, though recovery has begun.
  • The International Energy Agency estimated in mid-April that demand was down by 29 million bpd that month, the trough before a recovery that still brings a year-over-year drop of 9 million bpd.

What they're saying: BNP Paribas Asset Management analyst Mark Lewis believes 2019 may have been the peak.

  • He said in a mid-April Financial Times piece (subscription) that some current demand loss could be permanent, such that consumption hangs around in the 95 million to 100 million bpd range for several years before long-term decline begins.
  • "[C]onsider the structural pressures on the oil market already in evidence before coronavirus hit and then add to these the behavioral changes prompted by the pandemic, some of which seem likely to stick," he wrote.

Meanwhile, CNN reports that while the consultancy IHS Markit sees demand coming back to 2019 levels by 2022, they've also modeled a scenario in which a second virus wave leads to demand never coming all the way back.

The intrigue: The idea that peak demand just happened is not the mainstream view, though Bloomberg notes a "growing minority" are speculating about it.

  • But what's clear is that COVID-19 could at least hasten the arrival of the moment when it stops rising entirely.

What we're watching: How the next round of detailed projections account for the pandemic and its aftershocks.

  • The central scenario modeled by IEA in its 2019 long-term outlook sees growth, albeit slowing, through at least 2040, while BP's 2019 analysis sees a plateau arriving in the 2030s.

A scenario in which oil demand never fully recovers, or at least stops growing, would involve pandemic-fueled structural forces pushing in the same direction.

Those forces include...

  • Remote behaviors, notably telework, becoming a popular choice even when it's no longer a necessity.
  • Air travel, once seen as an important demand driver, never fully coming all the way back as the industry is changed forever.
  • Governments' massive economic rescue packages boosting support for alternatives like electric vehicles.
  • Structural changes to manufacturing and supply chains that hinder projected fuel use increases in trucking and shipping.

What they're saying: Veteran oil analyst Amy Myers Jaffe talked about that last point on the latest S&P Global Market Intelligence "Energy Evolution" podcast.

  • She said the pandemic could lead to countries crafting more national manufacturing strategies for vital goods, which would sap a key area of oil demand growth.
  • “That was a big part of where the oil industry thought it was going to get its growth, from all that moving of goods around in a global market,” she said.
  • “When we move to a more regional economy, we are going to find that we don’t use as many trucks to move goods, we don’t use as many ships to move goods. When we pivot to 3D printing I think we are going to find the same thing, that it will be easier to have local manufacturing.”

But, but, but: Oil demand is a pretty resilient thing, especially as oil-reliant activity expands in developing nations.

  • Also we're already seeing driving start to bounce back, and avoidance of mass transit could be bullish for road travel.

Go deeper: Oil industry has more bleak days ahead as coronavirus crushes demand

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