Global oil markets can expect to see demand peak beyond 2050 if prices stay under $100 per barrel, a new report by Bank of America Merrill Lynch has said.
Brent crude prices, which touched multi-year lows earlier this year, gained ground to reach $50 per barrel last week. Experts have predicted that prices could touch $60 this summer.
However, the BoFA Merrill Lynch report predicts a more conservative forecast of $47 in June, $39 in September and $55 per barrel in December.
“Continued USD strength could force Saudi either to cut oil production modestly and push Brent back to $50 or depeg the SAR, our black swan event, which could lead Brent to collapse to $25 per barrel,” the report stated.
“Supply uncertainty in Nigeria, Venezuela or Canada may impact oil prices both ways. We forecast 2016 Brent prices to average $46 per barrel respectively.”
Looking specifically at demand, transport will also play a big role and can also accelerate global demand to peak by 2030, it said.
At present, transport comprises 54 per cent of global oil consumption.
“As such, peak global oil demand lies beyond 2050, as long as we remain in a relatively low oil price environment of $55-75 per barrel in real terms,” BoFA Merrill Lynch said.
“Yet, more rapid electric vehicle adoption or fuel efficiency improvements, for example – due to higher oil prices, technological breakthroughs or severe policy changes, could alter this path and push peak global oil demand as near as 2030,” it added.
Emerging markets are continuing to see huge population growth, which in turn, has been hiking car penetration levels.
Demand for oil from cars will likely peak by 2030, due to a surge in mandated fuel-efficiency standards. The decline will also be exacerbated by a gradual increase in electric vehicles, anticipated to rise from 1 per cent of car sales at present to 20 per cent by 2050, the report said.
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“Other transport, including medium-heavy trucks, planes and ships, are not generally subject to strict efficiency standards. Hence, their oil demand growth should more than offset declines from cars,” it added.
Besides transport, petrochemical is the only other sector where demand is likely to grow.
Overall, the report projects global oil demand growth to slow from 1.2 per cent per annum in 2016-2020, 0.5 per cent in the 2020s and 0.1 per cent in the 2040s and 50s.
“To achieve a balanced market, we still see Brent at $61 per barrel in 2017. But an increase in Saudi supplies could spoil our view,” it said.
“We estimate global oil demand will increase by 1.2 million barrels per day per annum over five years at $55-$75, and by 1.7 million bpd at $30 per barrel.”
However, if oil prices hit $100 per barrel, a slowdown in transport demand growth, weaker efficiency gains and higher electric vehicle adoption would likely force global oil demand to peak by 2030.
“In short, $100 oil would be self-defeating in the long run, as it would bring forward peak oil demand in the face of a rapid supply expansion.”