BP says oil may have peaked in 2019

Global oil demand may have already peaked with little chance of a recovery from the slump caused by the coronavirus crisis, oil major BP said on Monday.

In its annual report on the future of energy BP said there would be a greater move towards renewables such as windfarms, solar panels and hydropower plants, accelerated by the shift in consumer behaviour during coronavirus lockdowns.

Under two of BP’s three base scenarios, demand for oil will not recover as people’s travel habits change and there is no return to pre-Covid air passenger traffic, implying that the commodity peaked last year.

A third scenario depicts no acceleration in climate action with demand plateauing at similar levels seen in 2019 through the 2020s before declining from 2035.

“In all three of these scenarios the share of renewable energy grows more quickly than any energy fuel ever seen in history,” said BP chief economist Spencer Dale.

The company last month said it would increase low-carbon investments eightfold by 2025 and tenfold to $5bn a year by 2030, while cutting its fossil-fuel output by 40% from 2019. Last week it took its first step into the offshore wind industry, spending $1.1bn on a 50% stake in two projects owned by Equinor of Norway.

BP last month reported a record $17.7bn second-quarter loss and halved its dividend as it counted the cost of plunging demand for its products. The company is also cutting 10,000 jobs from its workforce of 70,000.

AJ Bell investment director Russ Mould said the report "lays bare just why the company is so keen to transition away from fossil fuels".

“Its economists don’t have a crystal ball but it is striking to see them predict that oil demand may already have peaked. Essentially the argument seems to be that Covid-19 has accelerated trends that were already in motion – in this case a shift away from oil and gas due to mounting environmental concerns among the public, politicians and investors."

“Having announced such an ambitious goal at the outset of his tenure the pressure will be on chief executive Bernard Looney to flesh out his plans.

“He still needs to balance the need to move in a greener direction with the fact that many investors still hold the shares for their (albeit reduced) dividends which are underpinned by cash flow from the oil and gas business.”

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown said "making an abrupt heel-turn away from its core business towards renewables could see investors used to steady returns, leaving their seats and heading for the exit".