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As Covid-19 lockdowns gripped the world in 2020, Bernard Looney, chief executive officer of BP Plc, made a startling admission: He thought that oil demand might never return to its pre-pandemic peak. But recently, Looney has done an about-face.
After announcing ambitious plans to cut emissions, BP, one of the world’s top crude producers, is now plowing more money into fossil fuels. Oil consumption is heading for a record this year, according to the International Energy Agency (IEA). Supply — buffeted by Russia’s invasion of Ukraine, a slowdown in US shale growth and lackluster investment in production — can’t keep up.
It all comes down to China: The world’s second-biggest oil consumer is snapping up crude after reversing its strict Covid-19 policies. Against a backdrop of tight supply, the demand boost has everyone from Goldman Sachs to trading powerhouse Vitol Group predicting a rally to $100 a barrel later this year. “The demand from China is very strong,†Amin Nasser, CEO of Saudi Aramco said.
By the second half of the year, analysts say, the market will face a shortage — a scenario that will loom over the industry leaders meeting this week in Houston for CERAWeek by S&P Global, a major annual energy conference.
The impending crunch shows that even as the world embraces cleaner sources of energy, the thirst for oil is hard to slake. While the supply pinch has been a boon for crude producers and their investors, it’s hammering consumers and complicating central banks’ efforts to tame inflation.
In the wake of its abrupt reversal of Covid Zero, China’s economy is resurgent, boosting oil demand. Manufacturing posted its biggest improvement in more than a decade last month, services activity is climbing and the housing market is stabilising.
The reopening means Chinese oil consumption is poised to hit a record this year. Daily demand will reach an all-time high of 16 million barrels a day after contracting in 2022, according to estimate of consultants.
It’s not just China. India and other countries across the Asia-Pacific region are consuming more oil as borders reopen, helping propel global demand to a record 101.9 million barrels a day this year and potentially plunging the market into a deficit by the second half, according to the IEA.