- BP has recently released its 2023 Energy Outlook
- The energy giant says oil demand will likely decrease or plateau in the years ahead
- However, there’s no actual indication of that happening, and traders shouldn’t cling to those predictions
Earlier this week, global energy giant BP (NYSE:BP) released its Energy Outlook 2023. Like last year’s Outlook, it explores three scenarios: Accelerated, Net Zero, and New Momentum.
The 2022 Outlook had been prepared before Russia invaded Ukraine and thus did not take into account how the West’s response disrupted global energy flows. The 2023 report, however, purportedly includes updates based on this and new government action on renewable energy.
For traders, the potentially relevant part of BP’s Outlook is its oil demand forecasts. BP is one of many institutions (such as the EIA, IEA, and OPEC) that generate and publicize oil demand forecasts.
All of these institutions have various biases and considerations that impact their forecasts. They generally don’t explain what assumptions they start with when creating their models, so it is up to the audience to decide whether these forecasts are even relevant to the market. However, BP’s demand forecasts (which it does not even call forecasts, but rather “scenarios”) seem particularly divorced from energy and market realities.
For example, BP’s oil demand scenarios don’t even include data from 2020-2022 and don’t start until 2025. In 2025, BP sees global oil demand at a lower rate than it was in 2019.
But in 2022, global oil demand has already exceeded pre-pandemic levels and is expected to reach 102.73 million bpd in 2023. However, BP’s scenarios somehow have global oil demand declining to under 100 million bpd by 2025.
Then, its most realistic scenario (which is the only scenario worth considering because the Accelerated and Net Zero scenarios are essentially exercises in fantasy) sees oil demand plateauing for five years before declining.
BP’s primary reason for this is that it anticipates that oil demand for transportation will decline as electric vehicles are adopted, ICE vehicles become more efficient, and vehicles are “increasingly fuelled [sic] by alternative energy sources.”
When it comes to the developing world, BP concedes that oil consumption is likely to grow slightly due to transportation but believes sharp declines from the developed world will offset this.
Much of this is based on government policies designed to encourage EV use as opposed to the reality of EVs and their uses in society.
BP’s scenarios also seem to only consider the fallout from the Russia-Ukraine war as a vehicle for increasing the adoption of EVs and the percentage of power generated by renewable energy.
However, the reality we have observed since the war started last year is that countries like China and India are buying more Russian fossil fuels (crude oil and natural gas) and that European countries are not replacing Russian natural gas with renewable energy but are replacing it with oil, coal and natural gas from other sources.
Developing countries are also likely to buy more Russian natural gas and oil because of the significant discounts, not the transition to renewables.
Traders would be wise not to consider any of BP’s three scenarios for oil demand when making long-term investments in oil because they are mainly based on the belief that oil demand must decline rather than the reality that global oil demand is still growing.
Even BP’s CEO doesn’t appear to be taking these scenarios seriously. Just days after releasing the Energy Outlook, BP released its quarterly earnings, and it was reported that CEO Bernard Looney is dissatisfied with the company’s revenue from its renewable energy investments.
In fact, in order to bring shareholders better returns, he is looking to reorient the company’s strategy towards more traditional investments in oil and gas production.
If BP isn’t even developing its investment strategy based on its own oil demand outlooks, why should traders (or anyone else) take it seriously?
Disclosure: The author does not own any of the securities mentioned in this article.