Global demand for crude oil will peak sooner than previously thought as the COVID-19 pandemic and clean energy trends accelerate the shift from fossil fuels, according to IHS Markit.
The London-based research firm's latest long-term outlook shaves four years and 5.2 million barrels per day (bpd) from its 2020 peak demand estimate. IHS Markit now sees global crude oil demand rising until 2033, peaking at 81 million bpd, before starting a long-term decline.
At the same time, the firm's new base-case global demand scenario for refined products like gasoline, diesel and jet fuel calls for a peak in 2036, and for demand in 2050 to be lower than 2019 levels.
"The energy transition has accelerated during COVID-19, and the combination of changing consumer habits and a heightened sense of urgency around climate change will result in greater political commitment and financial backing for decarbonization of the industry," Sandeep Sayal, IHS Markit's vice-president of oil markets and downstream refining, said in a news release on Monday.
The forecasts come as the Organization of the Petroleum Exporting Countries (OPEC) warns the Delta variant of the coronavirus will weigh on oil's recovery until next year. OPEC anticipates oil demand will average 99.7 million bpd in the fourth quarter of 2021, down 110,000 bpd from last month's forecast. Those figures refer to total petroleum liquids, which include both crude oil and other refining inputs.
Predictions of "peak oil," the hypothetical point at which crude demand hits its maximum before starting to decline, have proven incorrect in the past. However, Rory Johnston, managing director and market economist at Price Street, sees the accuracy of these forecasts improving.
"I've held for a few years now that demand will plateau in the mid-2030s, but it's still super uncertain. The rate of absolute decline from that plateau is also still reliant on a bunch of stuff like electrified long-haul road freight, aviation, etc.," he said in an interview.
IHS Markit predicts a break-even price of US$50 per barrel of Brent crude (BZ=F) for most global oil supply sources until 2040.
Johnston expects oil and gas companies will reduce their upstream spending, and favour smaller projects that build upon existing infrastructure.
"As these peak demand forecasts creep forward, fewer and fewer upstream dollars are going to be spent, which will prompt occasional bouts of price spikes like we're seeing today," Johnston added. "That will also accelerate the transition away from more expensive and volatile fossil fuels."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.