Will this be the Last Oil Boom?

Economies opening after the COVID-19 pandemic will release huge pent-up demand for travel, products, and services requiring oil, leading to one of the strongest-ever growth periods for oil demand over the next two years. But this supercycle will be unlike any we have seen before. It will come more quickly and last for a shorter period—as little as 18 months—than earlier booms, according to a new report by Boston Consulting Group (BCG).

The report, titled The Last Oil Price Boom May Be in Sight, reveals how a supercycle can support the transition to low-carbon fuels and accelerate movement away from fossil fuels. Higher oil prices can not only incentivize consumers to moderate their oil consumption and switch to low-carbon energy sources at the same price or less, but they can also generate higher profits for oil producers, thus freeing up more capital for low-carbon investments.

Energy transitions are already underway as policymakers and companies seek to curb emissions and tackle climate change, slowing the rate of growth in demand. With the oil market system becoming increasingly flexible, and both supply and demand more elastic than in the past, this oil boom could be the world’s last.

Jamie Webster, a senior director at the BCG Center for Energy Impact and a co-author of the report, said, “The impact of this next, and likely final, boom in oil prices will be significant, and it will accelerate the transition to a more sustainable global economy. A rise in prices, coupled with post-pandemic stimulus targeted at rebuilding in a more environmentally friendly way, will see many countries step up investment in renewable energy and electric-vehicle charging networks.”

Growing consumer interest in oil-dependent activities such as leisure travel, together with a return to global economic growth, is set to boost oil consumption over the coming years. More oil will also be required as manufacturers rethink supply chain strategies in the wake of recent disruption, transporting more products and components to boost inventories above pre-pandemic levels. In addition, spending cuts during the pandemic could create a supply crunch as demand soars.

However, the rise in oil prices is likely to be short-lived. The oil industry has become more responsive to changing external conditions, with smaller and faster production projects, lower costs, and a better ability to balance market supply and demand. The period of increased revenues also gives oil producers a chance to invest in a lower-carbon future and repair their balance sheets.

Maurice Berns, a BCG managing director and senior partner and co-author of the report said, “Producers and oil consumers alike should use this opportunity as a catalyst to prepare for the lower-carbon world ahead.”

Edited by Maryssa Gordon, Senior Editor, Price of Business Digital Network