The coronavirus hammered fuel demand in the spring, causing consumption to drop by more than one-third as billions of people worldwide restricted their movements. Consumption rebounded in the summer, but some countries where infections were under control are seeing a resurgence in the deadly virus, sparking waves of lockdowns that could hamper the recovery.
“Risks remain elevated and skewed to the downside, particularly in relation to the development of Covid-19 infection cases and potential vaccines,” said the Organization of the Petroleum Exporting Countries (Opec), in its monthly report released on Monday (Sept 14).
The virus has infected more than 29 million people, with roughly 925,000 deaths in roughly nine months, according to Reuters data. Several companies are working on a vaccine, but it is likely months away from mass distribution, and it is unclear how effective any vaccine will be in preventing future outbreaks.
Opec cut its outlook for demand in 2020, saying world oil demand would fall by 9.46 million barrels per day (bpd) this year, an increase of 400,000 bpd from its previous report. It cut its outlook for Asian countries beyond China.
Global prices were walloped in April, with US crude futures falling at one point through negative-US$40 a barrel. Prices of both US crude and Brent recovered, but both are now trading at less than US$40, due to the weak rebound in demand.
“As economies around the world opened up, there was optimism and enthusiasm that we would just head back to normal over some period of time,” said Andrew Lipow, president of Lipow Oil Associates.
“What we’re seeing now is that there’s more pessimism because we’re seeing a resurgence of the virus around the world,” Mr Lipow said.
Energy giant BP, in its 2020 outlook released on Monday, projected in its base-case scenario that oil consumption peaked for good last year due to the health crisis, and that coronavirus could slash oil demand by about 3 million bpd by 2025 and by 2 million bpd by 2050.
Vitol chief executive Russell Hardy sounded a more positive note, telling a global petroleum conference in Singapore that oil demand in transportation sectors, with the exception of jet fuel, could return to pre-pandemic levels by the fourth quarter of 2021. That could help drain a surge of inventories, which grew by roughly 1.2 billion barrels in tanks and in water storage, Hardy said.
“The market is slowly chewing through that excess inventory,” he said, adding that about 300 million barrels have been drawn down from this year’s peak.
Refiners worldwide have been cutting processing due to weak overall demand and an abundance of crude. In the United States, product supplied over the past four weeks has been 16 per cent below the same time period a year ago, according to US Energy Department figures.
A dent in demand caused by a continuing rise in cases or a second wave presents “the most likely shock that the oil market needs to be considering in the next 12 to 24 months,” said Vitol’s global head of research, Giovanni Serio.
The International Energy Agency is set to update its projections for global oil demand in its monthly report due on Tuesday, after an IEA official said this month that the market appeared to be stuck between a stalled recovery and the absence of any major new lockdowns.