Despite current market conditions, the demand for oil will bounce back, according to a poll of Offshore Technology readers.
The poll asked: “Demand for oil has dropped by over 20%. Will it bounce back?” Of more than 750 votes cast, the overwhelming majority showed a strong belief that prices would eventually recover.
Given the options “Yes”, “No” and “I’m not sure”, 67.6% of votes were cast for “Yes”, 19.2% for “No” and 13.2% for “I’m not sure”, strongly indicating readers expect oil demand to recover to the same levels it was at before the Covid-19 coronavirus outbreak.
Rystad Energy vice-president of cost analysis Matthew Fitzsimmons recently told Offshore Technology he did not expect the Covid-19 downturn would affect the expected date of peak oil. Analysts at the firm currently expect this to fall in the late 2020s.
When will demand recover?
However, recovery will be slow. The International Energy Agency’s monthly oil report for April predicted global oil demand throughout 2020 would fall by 9.3 million barrels per day compared with 2019. This would be the largest fall ever recorded.
Across the second quarter, demand is expected to be 23.1 million barrels per day less than the same period in 2019. In the second half of the year, the report said it expects recovery to be gradual.
On Wednesday, Rystad published a report showing April as the low point for demand. This predicts May’s demand will be better, but still below demand in March. Currently, it says oil demand is down by 10.8%, road fuel demand is down 11.2%, and jet fuel demand is down 33.6%.
Ultimately, demand will be decided by when large economies ease restrictions. While the restart of some industries will stimulate demand, fractions such as kerosene and bunker fuel will need international travel restrictions lifted to begin recovery.
When will countries lift laws preventing demand recovery?
GlobalData pharmaceutical analysts expect the world’s largest economies to emerge from lockdown before the end of June. However, recovery after this will rely on countries maintaining restrictions until the virus is contained. Any second wave of infections would likely mean restrictions would be re-imposed.
Even after consumers are permitted to travel, demand will not recover instantly. To put this in perspective, the IEA predicted demand in December would still be 2.7 million barrels per day behind December 2019.
Demand was first hit in China with the initial outbreak of Covid-19 there. China’s economy is one of the world’s largest, and it is still rapidly growing. This growth drives demand for oil, and the country’s slowdown started the global oil price slide.
It is now recovering and returning to normal life. Schools are reopening, and more movement is leading to more demand, a pattern that is likely to follow elsewhere.