By David Hodari and Rebecca Elliott 

The world's thirst for oil is unlikely to peak for two more decades but may already have crested in the U.S. and other wealthier countries, according to a forecast by OPEC.

The demand estimate, from one of the oil market's most persistent bulls, punctuates the speed at which the coronavirus pandemic has upended the world's energy mix.

The Organization of the Petroleum Exporting Countries expects demand for its core product to fall more than 10% among the world's richest economies this year, and says it will never return to pre-pandemic 2019 levels.

Over the course of the next 25 years, it expects demand in those most developed countries to fall by about 27%, according to its closely watched annual oil supply and demand survey.

The steep forecast drop in demand among the Organization for Economic Cooperation and Development, a club of the world's richest economies, marks "an evolutionary shift in demand from developed to developing countries," said OPEC Secretary-General Mohammed Barkindo, during an online press conference unveiling the report Thursday.

In recent years, developing world demand has outpaced that of the developed world, as consumers in fast-growing economies, particularly China, drive cars, take vacations and buy and run air conditioners at a pace starting to approach their traditionally more affluent counterparts in the West.

The shift has been magnified by slow or stagnant population growth in richer countries, decades of fuel efficiency efforts and an accelerated embrace of alternatives to fossil fuels for powering everything from cars to electricity grids. Oil demand peaked in the OECD about a decade ago and fell steeply amid the global financial crisis. Since bottoming out, though, it had recently resumed a slow upward climb.

Then Covid-19 hit.

Spencer Welch, director of oil markets at consulting firm IHS Markit, expects the economic shutdown related to the pandemic and changes in how people work and live afterward to permanently reduce global oil demand by some 3% -- or about 3 million barrels a day. While much of the rest of the world will eventually resume and exceed the level of its thirst for oil reached last year, before the pandemic hit, OECD demand "is already past its peak."

Mr. Welch points to a still-small but fast growing shift to electric vehicles in pockets of the West. Sales of electric cars accounted for just 2.6% of global car sales but were up 40% from the previous year, according to the International Energy Agency. That growth is most pronounced in the developed world. During the second quarter, electric vehicles and plug-in hybrids made up about 7% of total new car sales in the European Union, according to the European Automobile Manufacturers' Association.

Advances in alternative energy like wind and solar, meanwhile, have increasingly taken market share from oil in global markets. The OPEC report forecast that globally, non-fossil fuels, such as nuclear, biomass and renewables like wind and solar, will make up 27.5% of the world's energy demand by 2045, up from last year's 18.7%. It said oil demand for feeding the world's electricity grids -- one of the world's biggest sources of demand -- has also already peaked.

Robert McNally, a former adviser in the George W. Bush administration and president of consulting firm Rapidan Energy Group, said many Western governments are already laying out plans to use the crisis as an opportunity to rethink energy policy.

"In Europe we're seeing recovery plans with a heavy decarbonization component," he said, "and more aggressive talk about new fundamental laws."

OPEC didn't have all bad news for big crude producers like its members, led by oil giant Saudi Arabia. The world's overall appetite for crude won't reach its apex for another two decades, it said, offering a much more optimistic view of global long-term demand than other forecasts.

OPEC forecast oil demand will plateau in 2040 at 109.3 million barrels a day -- some 10% above its 2019 level. It said that in 25 years non-OECD oil demand will have increased 43% from last year's levels, partly driven by economic booms in China and India.

That contrasts with a much more pessimistic view offered last month by oil giant BP PLC, one of a handful of mostly European major oil companies, that is now investing heavily in renewable energy. The British company said in its own closely followed long-term energy outlook last month that oil demand may already have peaked .

American producers, too, are already wrestling with the prospect of shrinking demand for their products. Two-thirds of oil and natural gas executives who responded to a recent survey by the Federal Reserve Bank of Dallas said they think U.S. oil production peaked earlier this year around 13 million barrels a day. Output has since fallen to around 11 million barrels a day, according to the U.S. Energy Information Administration.

Meanwhile, fuel makers from Marathon Petroleum Corp. to HollyFrontier Corp. have closed refineries in the face of weak appetite for products including gasoline and diesel. Many are now looking to convert those facilities to biofuels production, enticed by what they see as a growing market for products that generate less soot and fewer greenhouse gas emissions. Biofuels such as renewable diesel can be made from animal fat or used cooking oil and are used to satisfy government fuel regulations designed to curb emissions.

Investors have seen opportunity in greener fuels, too. Shares in Iowa-based biofuel company Renewable Energy Group Inc. have more than tripled in value in the last year, as an index of the three largest U.S. independent refiners fell by roughly half, S&P Global Market Intelligence data show.

--Pat Minczeski contributed to this article.

Write to David Hodari at David.Hodari@dowjones.com and Rebecca Elliott at rebecca.elliott@wsj.com

 

(END) Dow Jones Newswires

October 08, 2020 15:53 ET (19:53 GMT)

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