The global vaccine rollout brings with it promises of looser travel restrictions and a more mobile world. This in turn enables holidays, commutes, and even short-distance journeys that global governments previously banned. All of these would contribute to oil product consumption, so all arms of the industry hope for easing of regulations.
The current comparatively high price of oil would allow industry giants to recoup their 2020 losses and increase production at less cost-effective assets. However, any disturbance in the rollout of vaccines would slow oil demand’s return to 2019 levels. The International Energy Agency (IEA) has upgraded its expectations of oil demand, will vaccines maintain oil supply and demand?
Public faith, easing restrictions, and restarting global travel
Offshore Technology’s sister site, Pharmaceutical Technology, tracks the progress of Covid-19 vaccinations worldwide. According to its tracker, 2% of the global population has received full vaccinations. The data also implies that at least another 5% of the world population has had its first dose of a two-dose vaccine.
The vaccine rollout has had several hiccups, as multiple authorities have questioned the link between two prevalent vaccines and rare blood clots. While the incidence rate of these clots remains extremely low, they have significantly knocked vaccine confidence in some areas.
Polling company YouGov has shown a large decline in public faith in the vaccine in European countries. In Italy and Spain, polls suggest that more than 40% of the population changed their minds on the safety of the AstraZeneca vaccine in mid-March. France saw a smaller decline, partly as its citizens were more sceptical to begin with. Now, 61% of its population believes the AstraZeneca vaccine to be unsafe, compared to 23% who believe it to be safe.
Booster shots for public confidence and spending
The decline in confidence came after EU health regulators briefly suspended the AstraZeneca vaccine’s use to investigate possible links to blood clots.
On the other hand, some medical professionals believe that investigations will reassure the public that vaccines have received sufficient scrutiny. Most recently, the US has paused the rollout of its native Johnson and Johnson vaccine.
In response, Ashish K Jha, dean of the country’s Brown University School of Public Health, tweeted: “Confidence is built on having a system that takes adverse events seriously, investigates them, makes data-driven decisions. That’s what [US authorities are] doing.”
I know lots of folks think this will cause more vaccine hesitancy — and more harm than good.
I’m honestly not so sure
My sense is confidence comes from people believing that we have a vigorous system that takes adverse events seriously.
This is how it works.
— Ashish K. Jha, MD, MPH (@ashishkjha) April 13, 2021
The EU has also had issues securing adequate supplies of the vaccine, which has slowed its immunisation programme. This has postponed the return of tourism in France, Italy, and Spain, which usually rely on large numbers of tourists.
Travel restrictions here have had a large impact on demand for aviation fuel, which took one of the largest hits of any petroleum product during the pandemic. While easing travel restrictions would encourage demand, many European nations are currently seeing a spike in Covid-19 infections. At the same time, French and German leaders have expressed scepticism over the use of ‘vaccine passports’, which would allow authorities greater control over who could or could not be allowed to travel.
In the UK, the public’s economic confidence and willingness to spend has rapidly increased with its vaccine rollout. YouGov’s survey of consumer confidence shows the measure reaching its highest point in three years, while continuing upward. Most of the country has received its first of two vaccine doses
While Australia has made little vaccination progress, it remains mostly Covid-free via snap lockdowns, contact tracing, and travel restrictions. As a result, consumer confidence in the country has risen to its highest point in 11 years, according to Bloomberg.
How have initial impressions of the vaccine change oil demand predictions?
In its monthly report on the oil industry, the IEA upgraded its expectations of oil demand for the rest of 2021. The agency now predicts another 230,000 barrels per day of demand growth by the end of the year. This puts 2021’s average demand at approximately 96.5 million barrels per day, approximately the same level as in 2016.
This revision comes after a ‘weaker than expected’ first quarter of the year. The report’s summary states: “The recovery remains fragile, however, with the number of Covid cases surging in some major consuming countries”.
This fragility seems to have encouraged the Organisation of the Petroleum Exporting Countries (OPEC) and its allies to limit supply. While the group surprised analysts by maintaining supply cuts in March, OPEC now seems likely to maintain low production.
Already, cuts have driven crude oil prices to a level last seen in December 2019. At the same time, US president Biden’s new administration aims to increase regulation around its oil industry. Covid-19 caused total US oil production to fall by 600,000 barrels per day in 2020. In 2021, the IEA expects this fall to continue by another 100,000 barrels per day.
CHART OF THE DAY: American refiners now running at 85% of their operable capacity, the highest since the covid pandemic started, according to fresh @EIAgov data. U.S. oil demand is recovering, although still below pre-covid levels | #OOTT pic.twitter.com/8UUeQnI5hh
— Javier Blas (@JavierBlas) April 14, 2021
After low oil prices during last year, most countries have significant oil stockpiles. These have started to deplete in 2021, and countries in the OECD trade forum withdrew 55.8 million barrels in February. This marked the seventh month of stockpile depletion in a row, but stocks remained 28.3 million barrels above the average of the last five years.
Outside of both OPEC+ and the US, IEA analysts expect supply to regain approximately half of the 1.3 million barrels per day of production lost by the industry in 2020.