BP Calls Out Oil Demand Peak, OPEC Cuts 2021 Outlook

BP plc BP became the first major oil company to call out an oil demand peak in its energy outlook report on Monday.

The company said oil demand may not return to pre-coronavirus levels. This is a contrarian view, as most energy giants and OPEC ministers think oil consumption will see decades of growth, according to Bloomberg.

BP's 3 Oil Scenarios: BP's outlook considers three main scenarios: a rapid transition scenario, the net zero scenario and the business-as-usual scenario.

In the first two scenarios, oil demand falls due to COVID-19 and doesn't return to pre-coronavirus levels due to new policy measures that lead to a significant rise in carbon prices and shifts in societal behavior.

In the business-as-usual scenario, government policies, technology and social preferences continue to evolve as they have in the past. Under this scenario, the demand recovers but flatlines near 100 million bpd for the next 20 years.

Last year, BP's outlook considered a "more energy" scenario that projected oil demand growing steadily to 130 million bpd in the next 30 years. This scenario has been excluded in the current outlook.

"Demand for oil falls over the next 30 years. The scale and pace of this decline is driven by the increasing efficiency and electrification of road transportation," the report said. 

This also explains why CEO Bernard Looney said in August that he’d shrink oil and gas output by 40% over the next decade and spend about $5 billion a year to build one of the world’s largest renewable power businesses. 

Aligning with BP's call, OPEC has cut its 2021 oil demand estimate by 1.1 million bpd and downgraded its outlook for the global oil market a few days before the next OPEC meeting, according to Bloomberg. OPEC now sees 2021 demand of 96.9 million bpd.

Oil Price Action: Crude oil is trading down 0.7% to $37.08, a low seen in July.