Trading firms see oil demand peaking around 2030

Oil demand will peak in the 2030s, and has already culminated in Europe and the US, trading energy executives told the Energy Intelligence Forum today.

Trading firms Vitol, Gunvor and Trafigura all expect oil demand to peak sometime in the 2030s. Vitol's chief executive Russell Hardy and Gunvor's chief executive Torbjorn Tornqvist said that demand in Europe and the US has already passed its peak, although both agreed that the loss in demand from these regions will be more than compensated by growth in Asia-Pacific, especially China.

Vitol's Hardy said that he expected demand for diesel to peak in the mid-2020s, and for gasoline and LPG in the mid-2030s and 2040, respectively. Tornqvist went further, saying that global diesel demand had "already probably peaked", but that gasoline demand will probably continue to rise and that jet fuel demand will grow further when it recovers from the Covid-19 pandemic. Tornqvist said that diesel demand in Europe and the US is unlikely to go back to 2019 levels, but that jet fuel will be one of the growth products.

Talking about jet fuel demand and the effects of Covid-19, Trafigura chief executive Jeremy Weir said he did not expect consumption of aviation fuel to recover for a "substantial period" and at least not until 2022.

"If you look at [September 11 attacks on the World Trade Center in the US,] it took four years for jet to recover to pre-crisis levels and then after the financial crisis it took up to eight years to recover," Weir said. "We are not looking for a quick recovery."

Hardy said that Vitol did not expect "a great deal of change in demand until the second quarter of next year", with the assumption that the virus is abating by then and that a vaccine is available. He said that demand will continue to be around 5mn-6mn b/d lower on the year into this winter and that "the gap will begin to narrow from summer onwards."

Tornqvist said that Gunvor sees "around 6mn-7mn b/d less demand compared with the same time last year", with half of that coming from the loss in jet fuel consumption. Tornqvist warned that a lot of uncertainty remained because of Covid-19, and that the demand numbers could even be revised further downwards.

The three stressed that the demand recovery will not be even globally.

"The west is struggling much more compared to the east and we do think that the east, excluding jet fuel demand, will actually get back above prior-year demand by the end of this year," Vitol's Hardy said. Weir said that gasoline demand in India was already back at pre-pandemic levels.

"China has come back quicker from the pandemic that any other economy," Tornqvist said.

Asked if it was a good time to invest in upstream assets, Vitol's Hardy said the oil market had a "more positive future" two to three years down the line, and that today is not a "bad tactical time" to invest. He said that Vitol is looking at the US upstream. But Weir and Tornqvist warned that, given lower oil prices, returns are going to have to be higher to attract investment capital.

"Investors will take a hard look at the returns, and the unpredictability means that ten years projects will be hard to justify unless they have exceptionally low breakeven costs," Tornqvist said.

Vitol's Hardy said he sees oil prices at $55/bl in October next year and in 2030, while Weir expects $52/bl and $60/bl, respectively.

"They could go below $40/bl in the very short term depending on the pandemic", he said. Gunvor's Tornqvist said oil prices would reach $60/bl in 2030 and $50/bl end of next year.

By Caroline Varin