Yes, ‘peak oil’—but demand, not supply


After oil prices went negative for the first time ever last month, they are now starting to rise again as lockdowns imposed by the COVID-19 pandemic are gradually lifted. US crude is now back to nearly $30 a barrel. But this is less than half what the price was a year ago, and a third what it was a dozen years ago. Iraq, OPEC’s second-largest producer, is at the forefront of the cartel’s effort to squeeze supply to consumer nations, as part of its recent deal to curb output. Baghdad just announced a 30% cut of exports to Asia. But it remains to be seen if such measures will jack up prices and ease the economic pain that has led to a remobilization of anti-regime protests, despite pandemic fears. (Reuters, Bloomberg, Al Jazeera)

In a piece optimistically (in our view) entitled “Has Demand For Oil Already Peaked?,” comments: “[D]emand destruction on the order of nearly 30 million barrels per day (mb/d) may have been brief, but we are a long way from a 100-mb/d oil market.” Quoted is BP’s CEO Bernard Looney, who admitted the pandemic could entrench societal changes with the potential to permanently erode consumption. “It’s not going to make oil more in demand. It’s gotten more likely [oil will] be less in demand,” Looney said in an interview with the Financial Times. “I don’t think we know how this is going to play out. I certainly don’t know. Could it be peak oil? Possibly. Possibly. I would not write that off.”

Note that Looney is using the term “peak oil” in precisely the opposite way that it was being used just a few years ago. Then, it referred to the notion that the planet’s reserves will inevitably be exhausted before demand for oil is diminished. Now it suddenly seems to mean the notion that demand for oil will be exhausted, mandating that remaining reserves be left in the ground. This rather vindicates what we have been saying for years: Oil prices are driven by politics, not geology.

This is why this grim moment for humanity holds utopian as well as apocalyptic potentialities. But there are twin related challenges here: First, to assure that the adaptations that are now eroding oil demand are indeed made permanent; and secondly, to assure that the inevitable pain for this transition be borne by the ruling class—not the common people, whether of Iraq or consumer countries such as the United States…

Photo via Iraqi News Agency