By Nick Cunningham A wave of new oil refineries coming online in the Middle East and China will knock others offline, ushering in a period of consolidation, according to a new report from Goldman Sachs. Global oil demand has taken an enormous hit from the Covid-19 pandemic. Depending on who you ask, demand may recover swiftly, or it may take a few years, or demand may actually never recover to levels seen prior to the pandemic. DNV just published a report that estimates that oil demand may have peaked in 2019, although it warned that demand in 2050 will still be about where it is today. Improvements in energy intensity offset economic growth, but because demand is mostly flat for the next few decades, the world makes little progress on climate targets in this scenario. Goldman Sachs pours cold water on the thesis that demand already peaked. For that to occur, the bank says, there would need to be “hyper” adoption of EVs, higher crude oil prices, lower GDP, and higher energy efficiency. “The absence of any of the above four factors would imply peak oil demand is still further down on the horizon beyond 2030,” Goldman concluded. The bank sees demand rebounding quickly, rising above pre-pandemic levels after 2022. The bank cut its GDP growth target, revised up expectations of EV penetration, cut demand expectations due to the hit to business travel, but still sees demand growth by 1.1 million barrels per day between 2023 and 2025, before decelerating to 0.9 mb/d annual growth for the rest of the decade. Demand growth is lower than it otherwise would have been because of Covid-19, but the Wall Street bank still sees rising demand through 2030. But the downstream sector could see some rocky times. Even as it takes a few years for demand to recover, a flurry of refineries under construction are not slowing down. Goldman analysts say that “mega refining projects” will come online between 2021 and 2024, and the new capacity will force all refineries to lower their utilization rates by 3 percent over that timeframe. Fiercer competition between refineries, including the newer ones, will squeeze margins, and may force older refineries in developed countries to shut down entirely. As for products, the bank says that gasoline will rebound strongly as road traffic returns. Fear of mass transit amid a pandemic is pushing more people into passenger vehicles. Jet fuel, on the other hand, is “the biggest loser from this crisis,” and may not return to pre-pandemic levels until 2023, Goldman says. As EVs begin to really gain steam in the years ahead, Europe will really lead the way, where diesel is much more prevalent in the passenger vehicle segment. In that sense, EVs eat into diesel demand. On the supply side, all of the new refineries that Goldman analysts cite tend to be more distillate heavy, which will also weigh on diesel margins. Curiously, however, the investment bank seems confident that the pandemic will not last long. “The Covid-19 demand shock has been much shorter in duration, unlike prior oil demand crisis seen in 1980s and 2008-09,” the analysts said. With the U.S. breaking daily records for new cases, the risk to that analysis would seem to be on the downside. In fact, the pandemic could last in some form for years. But even in Goldman’s rosy assumption about a short duration, the buildout of new refineries in the Middle East and Asia still forces the shutdown of others in places like Europe and the United States. With oil demand growth coming largely from emerging markets in those regions, the new refineries will be better situated than older ones in OECD countries. In short, more refining capacity is coming at a time of tepid demand growth. But if demand ends up disappointing in the next few years, the pressure on older refineries may be even more intense. Crude Oil


By Irina Slav

Billions of people spent the last few months in a lockdown of some form or another with travel bans or severe restrictions in place. Some warn that this will be our new normal. And this new normal could accelerate a shift away from hydrocarbons as the single most popular source of energy.

“COVID-19 lockdown experience of reduced commuting and business travel, alongside better air quality and family time, may deliver lasting changes in energy consumption,” Moody’s said in a recent report. These changes, the rating agency went on, will combine with slow and labored economic recovery to depress energy demand, both in the business world and among households.

As demand for oil falls, Moody’s said, slower economic growth, increased use of alternative fuels for transportation, electric vehicles, and better fuel efficiency will add their own weight on oil demand. And as new behavioral patterns become permanent, this weight on oil demand will also become permanent.

It is still early days, however. Nobody knows really how much people will change their traveling and commuting habits as a result of the pandemic—still very much in full swing—and how much oil demand will be permanently lost. But one thing is certain: with CO2 emissions on track to post an annual decline this year thanks to the lockdowns, governments bent on building a cleaner energy future for their nations will seek to seize the opportunity to advance their agenda, striking when the iron’s hot.

Already the EU is trying to tie up its pandemic recovery financial aid package with green targets. The package has yet to be agreed by all members, and internal divisions run deep, but there is a strong ambition to make Europe’s energy a lot greener than it is now. But Europe is no longer a key market for oil demand. It’s Asia that oil producers look to for robust demand and demand growth.

There is bad news for Asia, too. Asian economies have been battered by the coronavirus to the extent that their economies will register almost no growth this year. Economies in East Asia, for instance, are seen growing by a meager 0.5 percent, according to the World Bank. South Asian economies will not grow at all: for them, the WB sees a contraction of 2.7 percent.

Europe’s economy will also contract, of course, by a sizeable 4.7 percent–the same rate as Central Asia.

Asia was the key market for the global oil industry because of its fast and robust economic growth. This growth won’t be showing up to the oil party this year, even if reports of China ramping up its oil consumption abound. Already there are expectations that China’s oil import rate will slow during the third quarter in the latest sign yet that nothing lasts forever.

But things may already be past the point of no return for oil. In fact, according to Boston Consulting Group, peak oil demand has been passed, and the coronavirus pandemic has only made this more obvious.

In a report, BCG noted how disproportionately hard oil and coal were hit in terms of demand, unlike renewable energy, the demand for which continued to grow throughout the lockdowns. Of course, a lot of the demand loss for oil was because of the virtual halting of global passenger air traffic—a sector where renewables are not yet a viable alternative to fossil fuels, so they could not be affected by events. But air transport was not the whole picture.

BCG, like Moody’s, cites the slow global economic recovery from the crisis as a fundamental factor in oil demand changes ahead. But it also notes the green recovery plans of governments and similar scenarios of international energy authorities. By modeling the impact of the pandemic on fossil fuel demand, BCG analysts revealed that the only scenarios where oil demand recovered to growth mode were the ones that featured no green recovery measures at all.

These are hardly the scenarios that will play out. But regardless of the scenario, it will be the transportation sector that will make or break future oil demand, according to both BCG and Moody’s.

“Whether and to what extent oil demand recovers will depend largely on how quickly demand in the transportation sector improves, especially in China,” the group’s analysts said in their report.

Moody’s, too, modeled the impact of Covid-19 on oil demand under two scenarios—a fast recovery and a slow one. Under the first scenario—a fast economic recovery—some 2 million bpd of oil demand is to be displaced by EVs and improved fuel efficiency in ICE cars by 2025.

Meanwhile, the total loss of demand for 2020 would be 3 million bpd. Under the second scenario of slow economic recovery, 5 million bpd would be lost in oil demand this year, and may well never be regained as a result of changed human behavioral patterns and continued slow economic growth.

It looks like under the most realistic scenarios, oil demand growth is all but doomed. The only question seems to be just how quickly or slowly it will decline from this point on. Large oil producers may want to revisit their long-term plans.

Crude Oil


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