It is Nov. 13, 2024, and for the first time in five years, global oil demand is set to average just over 100 MMbbl/d annually. Oil consumption trod a long and uneven path to get here. While the COVID-19 pandemic accelerated the energy “transition” in the OECD, oil is experiencing a surprising renaissance in non-OECD markets. These contrasting narratives stem from disparities in per capita incomes, demographics and environmental policies.
In the OECD, the pandemic resulted in some people permanently working from home, diminished face-to-face meetings and heightened concerns about climate change – all drags on oil consumption. While the pandemic temporarily stalled non-OECD income growth, fossil fuels paradoxically enjoyed renewed tailwinds here because of more costly, difficult to implement or simply unavailable alternatives.
A stark contrast in demographics further separates the non-OECD and OECD in terms of the momentum behind economic growth and oil demand (Figure 1). Aging populations in North America and Europe mean a more sedate pace than that associated with more youthful populations in Africa and Southeast Asia. Additional nuances abound. In the case of personal road transport, already-high per capita incomes in advanced economies combined with heightened environmental concerns are fueling sales of premium-priced electric vehicles like the Tesla Model 3. In emerging markets, cost-conscious car owners wanting to cruise around town without having to worry about finding the next charging station are choosing the Tata Tiago, an affordable (~$7,000) three-cylinder compact car that sips gasoline at a rate of roughly 24 km/l.
The tailwinds on non-OECD oil demand don’t stop here. Investors in productive capacity in emerging markets remain unmotivated to adopt costlier sustainable technologies, especially having just survived the economic challenges posed by the COVID-19 pandemic. Investors in the advanced economies are making ESG more of a priority.
Ultimately, while the world is back to the pre-pandemic level of oil demand, this accomplishment likely will be fleeting as the economics and availability of alternative technologies improve, enabling the developing world to get on the off-oil bandwagon.
So, in the end, 100 MMbbl/d of demand certainly isn’t what it used to be.
FIGURE 1 | Demographic Divide
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