With the world beginning to get back on its wheels, a ‘new normal’ is set to emerge. But what will new normal look like – particularly, will crude oil demand ever return to pre-pandemic levels?
Our streets are not as empty as they were just a short while ago. Freeway traffic is rising. Prices at the gas station have gone up somewhat. In tandem with the unprecedented, globally-co-ordinated output cuts, demand is beginning to rise.
To bring out the crystal ball and look into the future is virtually impossible at this stage. The post-pandemic crude oil world is still being shaped. But outlines are beginning to emerge.
Until three months ago, the oil industry was looking at aviation and petrochemicals for continued demand growth, writes industry obersver Tsvetana Paraskova. The pandemic has altered all such projections.
The aviation industry has been dealt a near-deadly blow, she writes, upending all plans for fleet utilization for years to come. The expected growth in jet fuel demand through 2040 may not occur now, as airlines are cutting operations dramatically and aren’t expected to resume normal operations any time soon.
Rystad Energy, another industry observer, sees jet fuel demand plunging by 33.6 per cent in 2020, at least 2.4 million barrels per day (bpd) from last year’s 7.2 million bpd.
“We believe this industry will recover but it will take two to three years for travel to return to 2019 levels and it will be a few years beyond that for the industry to return to long-term growth trends,” a Boeing executive was quoted as saying.
But a few industry leaders have a different perspective.
Royal Dutch Shell chief executive officer Ben van Beurden suggests oil demand may never recover fully.
And Citigroup analysts don’t see jet fuel consumption back at last year’s level until well into 2022 – and some insist even that’s too optimistic.
Emphasizing that a new post-COVID-19 world will emerge, Bloomberg’s Julian Lee says global gas consumption has been hit on a long-term basis, as many would gladly give up the daily commute in favour of working from home more often. Lee also emphasizes that after months of successful teleconferencing, those business trips that helped keep planes full of high-paying travellers may come under more scrutiny.
Glut, pandemic keep world oil market on edge by Rashid Husain Syed
The April Monthly Oil Report of the International Energy Agency (IEA) concedes the demand recovery will only be gradual. In December, it says, demand will still be down 2.7 million barrels per day (bpd), year-on-year. The report also suggests that the refining throughput in 2020 is expected to fall 7.6 million bpd to 74.3 million bpd on sharply reduced demand for fuels.
Global refinery intake is also expected to plummet by 16 million bpd in the second quarter of this year, with widespread run cuts and shutdowns throughout the world. And although refinery runs are falling, product stocks are still expected to build by six million bpd, while refining activity will slowly recover in the second quarter, once global markets begin moving into deficit.
Too many ifs and buts, indeed.
The report says the output cuts recently announced by global crude producers won’t rebalance the market immediately. “We forecast a significant year-on-year fall of 26 million bpd in May. In June, the demand will still be 15 million bpd lower than a year ago.”
“It is still too early to determine the longer-term impacts, but the energy industry that emerges from this crisis will be significantly different from the one that came before,” says Fatih Birol, the IEA executive director.
And Birol carries weight.
So new normal will take some time to take shape in the crude oil market.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.
The views, opinions and positions expressed by columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of our publication.