Oil field oil workers at work
© Song Qiuju / 123RF Stock Photo

With Covid-19 disrupting travel, forcing a shift to remote working and gutting economic growth, the demand for oil may never return to 2019 levels, Moody’s Investors Service suggests in a new report.

Fallout from the pandemic creates a series of headwinds to global oil demand, the rating agency said in the report.

Both household and business demand may be hampered by recessionary trends and weaker long-term growth expectations, it stated.

“At the same time,” the report stated, “the risk of behavioural change, along with increasing use of biofuels, electric vehicles and improved engine efficiency adds to the risk of oil demand eroding over time.”

Said James Leaton, vice president and senior credit officer at Moody’s: “Oil demand may take a long time to recover to 2019 levels due to the combination of weaker economic growth, decarbonization trends and behavioural shifts, increasing the possibility that demand peaked in that year.”

The report considered two scenarios: one in which monthly oil demand is 3% lower than 2019 levels heading into 2021; and one in which demand is 5% lower.

In both scenarios, the models indicate that demand doesn’t return to 2019 levels until at least 2025 — and in the second scenario, the recovery takes longer.

“While not a forecast, the scenarios highlight the increasing challenges in estimating demand for oil, which contributes to the risks of making new investments in the sector,” Leaton said.

The increased uncertainty about the prospects for oil demand intensifies the risk for new oil production projects, Moody’s said.

“The effects of Covid-19 could also limit any rebound in coal generation and could speed the decline of coal in the U.S. and Europe by a few years,” it noted.

“Renewables make up the majority of recent capacity additions,” Moody’s added, “which continue to displace thermal generation, especially with reduced demand for power.”