New report finds strong global oil demand at least through 2020 ‘Mini golden age’ of refining offers opportunity to prepare for future changes

A report just released by global business information provider HIS Markit says global demand for refined products is expected to grow an average 1.1 million barrels per day through the end of 2020. A report just released by global business information provider HIS Markit says global demand for refined products is expected to grow an average 1.1 million barrels per day through the end of 2020. Photo: Michael Ciaglo/Houston Chronicle Photo: Michael Ciaglo/Houston Chronicle Image 1 of / 1 Caption Close New report finds strong global oil demand at least through 2020 1 / 1 Back to Gallery

The increasing focus on alternate transportation such as electric vehicles is not expected to short circuit rising oil demand, at least for the next several years.

A report just released by global business information provider IHS Markit says global demand for refined products is expected to grow an average 1.1 million barrels per day through the end of 2020. The report compared the levels of total oil liquids demand to those seen in what it called the “golden age” of refining from 2003 to 2007.

Spencer Welch, director, head of global short-term refining research at IHS Markit said oil producers should learn four things from the report he co-authored with Eleanor Budds, principal analyst, oil markets and downstream.

“One, global oil demand is currently growing at exceptional rates, equal to the golden age of refining from 2003 to 2007,” he told the Reporter-Telegram by email from London, where he is based. “Second, the current oil demand growth is more diverse than 2003-2007, distributed more widely across the globe and between different refined products, whereas in 2003-2007, demand was heavily weighted toward diesel and gasoil growth in China. Third, this will continued for another few years, so refining margins are expected to remain strong in this period, considerably better than the challenging years of 2009-2014. Finally, refiners need to make the most of the current good times, to invest and prepare for a future that may be more challenging and competitive as global oil demand eases.”

Welch explained that refiners are making more money because strong oil demand growth tends to increase margins. “The reason for this is that refinery capacity takes longer to increase than demand growth – if demand is growing rapidly – so rapid demand growth means refinery utilization increases, which can be a challenge to the industry, causing tightness in refined product markets and refined product prices to rise,” he said.

Another difference in this cycle is that natural gas liquids are contributing more to global demand, making up around 25 percent of total oil demand growth at present, Welch said. “This is not good for refiners because these bypass refiners, going straight from the producing well to a consumer so consumption growth of these does not help refiners. However, even the remaining 75 percent of the demand growth is still high and good for refiners.”

The company’s researchers continue seeking answers to questions such as how long oil demand growth will last, and will ongoing economic growth and moderately low, stable oil prices continue to support demand and refining margins into the medium term.

“We focused on the exceptional high oil demand growth at present,” said Welch. “Medium to long-term oil demand growth will ease, as substitution by alternative fuels increases and efficiency increases, but oil demand is almost certain to continue growing into the 2030s.”

He repeated his caution that oil demand will ease as it is impacted by the rise of alternative fuels such as electric vehicles.

“They will have an impact, but not for at least 10 years, in our opinion,” Welch said. Though such vehicles comprise only 1.5 to 2 percent of total global vehicle sales and account for less than 0.5 percent of the global vehicle fleet, he said they are gaining momentum.

“There will be lot of momentum, a lot of increased sales before they become significant and impinge on the use of oil as a transportation fuel,” Welch stated. “Ten to 15 years is what we expect before electric vehicles eat into the use of gasoline and diesel. I think it’s inevitable it will happen. It’s a question of when. It’s way off in the future, but the future is coming.”