Oil demand recovery under spotlight as lockdowns ease

Growing caution over second-wave of infections

Threats to pre-crisis oil consumption patterns

Jet fuel demand set to lag fuels recovery into 2021

London —
Optimism over a swift and steady economic rebound from crushing pandemic lockdowns have helped global oil prices stage a dizzying rebound from near two-decade lows in April.

Nearly all the oil demand metrics have been encouraging so far. After bottoming out in early to mid-April, global economic indicators are improving with the exception of aviation activity which remains well below seasonal norms.

Implied driving activity is already well above pre-crisis levels in both the US and Germany, Europe’s biggest economy and user of fuels.

In the week to June 5 alone, the US saw a surge in refined product demand to 17.57 million b/d, the strongest since the week ended March 27 when the first statewide lockdowns went into effect.

Market consensus has formed around an expected global oil demand slump of around 8-9 million b/d this year after a fifth, or some 20 million b/d, of demand, was wiped out by lockdowns in April.

But the so-called V-shaped recovery path —where global oil demand will continue to rise steadily to snap back to its previous trajectory by year-end —is being called into question.

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DEMAND PATTERNS

One major uncertainty over oil’s recovery is how much of the world’s upended work and social behavior partners during the crisis stick even after lockdowns are lifted.

On June 9, the US’ Energy Information Administration cut its forecast for 2021 US oil demand for a second time, forecasting demand will be 1.26 million b/d lower than its pre-lockdown baseline.

Standard Chartered is even more bearish, predicting slow recoveries in jet fuel demand and diesel demand will hobble the US rebound next year.

“We think that much of the market is ignoring the downside risks to demand arising from both economic weakness and permanent changes in patterns of energy use brought on by COVID-19,” the bank’s energy analyst Emily Ashford said in a note.

Fears that the pandemic could inflict lasting damage on oil demand due to less commuting, fewer business trips and hardwired adoption of social distancing, are hard to gauge. For now, at least, most market watchers feel it is still too early to predict how behavior patterns will impact demand.

Research suggests that overall energy savings from mass home-working are likely to be limited, and in many cases could be non-existent, according to The World Economic Forum.

SECOND-WAVE CONCERNS

The other key variable in current demand recovery forecasts is the potential for second-wave of infections –and resulting return to lockdowns– if the current curbs are lifted too quickly.

Goldman Sachs this week raised its forecast for Brent crude by $6/b for the second half of…