At more than $100 a barrel, peak global oil demand was scheduled for 2025, but it is now on ice if oil stays at $50 to $70 for over five years, a report said, warning that continued high prices may have led to zero global demand growth.

Oil prices have fallen sharply in recent months partly because the sensitivity of global consumption to near-term price changes in prices is low, added the recent report from Bank of America (BofA) Merrill Lynch Global Research, titled, "BofA Global Energy Weekly – “Peak oil demand on ice”.

Other things being equal, world demand only increases by 1.5 per cent after seven quarters on a 50 per cent drop in prices, the report said.

 Yet in the long-run, the impact of permanently lower prices on oil consumption can be far more profound. In fact, at $100+ per barrel, oil demand growth was slowing down at an alarming rate.

According to BofA Merrill Lynch, a continuation of the high price environment since 2011 may have led to zero global demand growth, or peak oil demand, by 2025 as consumers moved to smaller and more fuel efficient cars.

These long-term demand trends may have played a role in Opec’s November decision to keep output steady.

If oil stays at $50 to $70 per barrel over five years, peak demand would be pushed out past 2030. Oil consumption growth would accelerate in the medium to long-term across many regions.

Prior to the oil price rout, a consumption growth in emerging markets (Ems) on a 5-year view of roughly 1.5 million barrels per day per year on average was expected, the report said.

“Now, we would expect to see a large structural pick-up in diesel and gasoline vehicle sales in major EMs in response to the lower retail prices, and a deceleration in decline rates in DMs as consumers opt to drive more in larger cars,” the report noted.

Lower oil prices will benefit primarily gasoline demand

Oil is primarily a transportation fuel. Within the transport sector, about 80 per cent of petroleum fuels around the world are consumed on the road in both developed markets (DMs) and EMs alike. The products used are primarily gasoline and diesel, with developed markets tilted more towards gasoline and EMs skewed more towards diesel consumption.

Shipping and aviation take up the other 20 per cent, with EMs keeping a larger share of the bunker fuel market and developed markets taking a larger portion of jet demand.

“We estimate the sensitivity of gasoline to price is more than double that of jet fuel,” the BofA Merrill Lynch report said. – TradeArabia News Service