It’s the battle that will define the US oil market this decade. On one side, the combination of rising sales of electric vehicles, more efficient conventional cars, and the impact of working-from-home is pushing down gasoline demand; on the other, the ever-growing popularity of plastics combined with a growing population is boosting consumption of petrochemicals.
In short, one can call it “Tesla against the plastic industry.”
If Tesla and its electric-vehicle rivals win the battle, oil demand will peak soon, helping to meet global climate change goals by reducing consumption of fossil fuels. For now, however, plastics have the upper hand, keeping overall oil demand growing.
On Tuesday, the Energy Information Administration, the statistical arm of the US Department of Energy, released its first forecast for the 2024 oil market. The look is tentative but provides early clues about its direction. Every January, the EIA is the first of the three major public bodies to publish its outlook for the next year. The International Energy Agency will release its take in June, and OPEC will follow up a month later.
The EIA analysis shows that US oil demand will rise next year to 20.63 million barrels per day, surpassing the most recent peak, set in 2018 and 2019, and within a whisker of the all-time high set between 2004 and 2007 when demand averaged 20.7-20.8 million barrels per day just before the onset of the global financial crisis.
Strikingly, American oil demand will rise to near-record levels in 2024 despite a significant drop in gasoline use, which in the past was the engine of US oil consumption. It’s an indication that electric-vehicle sales would need to grow significantly before they force overall oil demand down.
The EIA estimates that by 2024, American gasoline demand will drop to 8.73 million barrels per day, or about 600,000 barrels a day lower than it was in 2018. That’s equal to the total oil consumption of a medium-sized European nation like Belgium. All suggest that the heyday of American gasoline demand is in the rear-view mirror. But the fall would be more than offset by rising consumption of the feedstock used in the petrochemical industry to produce plastics, which will hit a record high of about 4 million barrels per day by 2024, up more than 700,000 barrels from 2018.
The US trends are mirrored elsewhere in the world, with plastic consumption soaring in emerging markets like India and China. The EIA anticipates that global oil demand will hit an all-time high of 102.2 million barrels a day in 2024, up 1.7 million barrels a day from 2023 and above the pre-COVID peak set in 2019 of 100.8 million barrels a day. In projecting another year of strong consumption growth, the EIA is further postponing peak oil demand.
If a peak in oil demand is near, it’s not showing up in any contemporaneous data or reliable short-term forecast. Only long-term models — rather than forecasts — point to a peak within the next few years. Everything else shows steady-as-it-goes consumption. The 2024 EIA forecast is a case in point: Not only is global oil demand heading toward another record, but the rate of growth isn’t moderating.
Javier Blas is a Bloomberg Opinion columnist covering energy and commodities. Views are personal, and do not represent the stand of this publication.
Credit: Bloomberg
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