In an era where the world is looking to shift towards cleaner renewable energy sources, the COVID-19-induced worldwide quarantine/lockdown period has further driven down daily crude oil consumption by almost 33% this year, causing panic in the Organisation of Petroleum Exporting Countries (OPEC). Is this the beginning of a permanent shift away from oil? How does a very oil-based global economy adapt to this change?
“People are waking up to a new reality and trying to work their heads around it all,” an industry source close to OPEC told Reuters, adding the “possibility exists in the minds of all the key players” that consumption might never fully recover. Anonymous sources from within the organisation also told Reuters that the crisis had forced the 13 members of OPEC to reconsider their long-held idea that demand will grow perpetually, as crude oil prices dipped below $16 a barrel, as compared to $145 a barrel in 2008.
Another issue faced by OPEC is that the 13 members are no longer the only major crude oil producers in the world, with non-OPEC countries such as Venezuela, Russia etc. accounting for over 60% of global oil production. OPEC officials are sceptical of demand returning to pre-crisis levels, citing previous shifts as precedent. One official said, “The demand does not return to pre-crisis levels or it takes time for this to happen,” he said. “The main concern is that oil demand will peak in the next few years due to rapid technological advances, especially in car batteries.”
This downturn comes as a shock to OPEC, who had projected rise in global crude oil consumption to 101 million barrels per day in 2020 (from 99.7 mn BPD in 2019). Alas for them, global lockdowns grounded planes and parked cars, causing OPEC to reduce their projections by around 10 million barrels per day (a reduction of 3650000000 barrels in a year, for perspective), with even 2021 demand failing to leave up to 2019.
As electrical vehicles gain in popularity around the world, and with air travel not expected to reach 2019 levels until 2023, OPEC members must figure out what to do with their vast crude oil supplies. OPEC has faced drops in the 80s, 90s and even the 2000s, but this is not a crisis that one can recover from. This marks a shift in the global economic mindset, one which is here to stay.