BP has joined a growing number of oil and gas companies that recognize the industry’s best days are in the rearview mirror, anticipating that oil use will peak within 10 years. The company’s new Energy Outlook asks not whether demand will drop, only how soon and how quickly. The London-based energy company is not the first to plunge a dagger into the back of the oil industry. Royal Dutch Shell predicted in 2018 that oil demand would peak in the late 2020s. Smaller industry forecasters have also made similar predictions.
Stubborn industry loyalists should heed these warnings, even if U.S. oil producers still dream of oil markets growing indefinitely. Consumer demand is shrinking, which will leave companies with three options: expand market share, diversify the product line, or wind the business down. The easiest way to grow market share is to slash prices below what competitors can match. OPEC leader Saudi Arabia and its partner Russia have adopted this strategy, keeping international oil prices around $40 for most of the year. Most U.S. companies cannot survive at that price point.
Some industry analysts, especially those contracted by U.S. firms, predict that once the Coronavirus Recession recedes and people travel again, the price of oil will shoot up. They even expect the price will rise high enough to grow demand for expensive fracked oil from American wells.
BP’s demand outlook, though, argues otherwise. The company’s economists say oil demand will barely surpass 2019 levels. OPEC and Russia are holding back 1.5 million barrels a day, more than enough to keep prices low if they choose.
Russian officials made it pretty clear in April that they want prices around $40 a barrel to keep the U.S. industry from making a comeback. Saudi Arabia and other OPEC nations are learning to live with these lower prices...MORE
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