Future oil product demand growth will never return to pre-coronavirus levels, Citi Research said, adding that oil prices were likely to fluctuate between $45 and $60 a barrel in the long term.
Global oil demand dropped sharply this year as a result of lockdowns imposed to contain the coronavirus.
“Not only will the world have lost 2+ years of demand growth, but the elasticity of oil product demand to global GDP will take a step-level change lower,” the bank wrote in a note published on Wednesday.
Jet fuel demand is unlikely to reach 2019 levels before 2023 as changing work habits, including telecommuting, and environmental regulations to limit carbon and other emissions will reduce demand for both jet fuel and gasoline.
In the short term, deep production cuts by OPEC+ and non-OPEC+ producers along with recent capex cuts and project postponements could lead to a short-lived supply crunch, Citi said.
The sharp supply cuts should drive a strengthening of the oil forward curve and a flip to backwardation, the bank said, referring to a market structure where prices nearby are higher than those further forward.
But with increased efficiency of capital from new technologies, a short-term price increase toward $60 or higher is likely to trigger more than adequate supply.
Any new equilibrium price would be at lower levels than what the sector has averaged over the past few years, they added.
“We believe the $100 per barrel view has far more fantasy than reality at its heart and that even a $70 world would be short-lived,” Citi said, adding that price stability will be elusive and impossible.