It may not feel like it, but West Texas Intermediate (WTI) oil just posted its best month on record. The American benchmark for crude soared more than 88 percent in May, from $18.84 per barrel to $35.50, as businesses cautiously began to reopen and people returned to work following the coronavirus lockdown.
Even so, global oil demand may never fully recover to pre-coronavirus levels, according to some analysts. I believe this makes alternative and renewable energy producers even more attractive from a long-term investment point of view.
Demand for oil in 2020 may end up being 10 percent lower than the previous year, according to estimates by Bloomberg Intelligence analysts Rob Barnett and Salih Yilmaz. What’s more, oil consumption could very well have peaked in 2019 at about 100 million barrels per day.
“The coronavirus-driven demand shock will probably keep a lid on oil prices for the next six to 12 months,” Barnett and Yilmaz wrote in a research report dated June 4, “and structural changes stemming from the crisis may permanently reset the bar lower.”
But what “structural changes”?
Working from Home
Some see the rise of remote working as the biggest threat to oil demand going forward. Among the many companies that have already told their employees they can now work from home—permanently, if they choose to—are Twitter, Square, Facebook, Shopify and Coinbase.
This may be good for shares of Zoom and other teleconferencing companies, but not for oil demand.
Let’s put this in context: About 45 percent of each barrel of refined oil is used to make gasoline. So when working from home becomes the norm for a large percentage of people, it’s only natural that a substantial amount of oil demand will be wiped out.
And that’s before we factor in the growing popularity of electric vehicles (EV), which is also taking a bite out of oil consumption. Shares of EV-maker Tesla have surged more than 370 percent in the 12-month period through June 10, are just today cracked $1,000 for the first time ever, a sign that investors may be betting heavily on the electrification of automobiles.