Crude demand on rebound despite virus fallout

Growth forecast to rally to between 92% and 95% of pre-pandemic levels

Despite projections that the coronavirus pandemic would hasten peak oil demand, global consumption for the commodity has rebounded by an astounding 13 million barrels per day in the past four months, according to a new study.

Global oil demand has now recovered to 89 per cent of what it was before the COVID-19 pandemic crushed oil markets and oil prices as commuters stayed home and air traffic ground to a near halt, IHS Markit analysts said in a report Tuesday. The energy research firm is now estimating that oil demand growth would recover to between 92 per cent and 95 per cent of pre-pandemic levels even without a vaccine by the first quarter of 2021.

Oil demand will likely stay at that level, between 92 million and 95 million barrels per day, until the virus is contained or effective vaccines are developed. Pre-pandemic oil demand had climbed to around 100 million bpd.

“We were surprised (oil demand) has gone up even with the surge in U.S. cases in June and July,” Jim Burkhard, vice-president and head of crude oil research at IHS Markit, told the Financial Post.

Burkhard said his firm had previously expected crude oil demand to rebound but also expected the coronavirus pandemic would be better contained by this point. He said global oil demand has rebounded primarily on the back of European and Asian economies reopening.

In the U.S., where there have been close to 5.8 million cumulative cases and 177,773 deaths according to Johns Hopkins University data, demand for crude has also rebounded sharply.

Burkhard said the move by U.S. governments to loosen COVID -19 restrictions before the virus was constrained combined with “fatigue

with social distancing” has driven the oil demand rebound in the country.

Mobility data from Apple Inc. shows that car trips in California, the most populous U.S. state, declined by over 60 per cent in March when the coronavirus pandemic forced lockdown orders, but trips by car have fully recovered. Car trips are up six per cent more now in the state than at the start of the year.

“There’s been record oil demand growth. It’s only a record because of how low demand sank in April,” Burkhard said, warning that he expects global oil demand is now approaching a “plateau” because many commuters are still working from home and air travel hasn’t recovered.

It would take an effective vaccine or better containment of the coronavirus pandemic before oil demand fully recovered because air travel hasn’t recovered and many would-be commuters are still working from home, Burkhard said.

A full recovery would be contingent on how quickly a vaccine could be developed, he said.

“The reason oil demand collapsed was behavioural change,” he said. “Those behavioural changes would strengthen the trend of working from home.”

If an effective vaccine is developed in the near term, and people return to their work commutes, air travel plans and pre-virus activities, a full rebound in oil demand is likely.

“The longer it goes on, the more permanent behavioural changes we’ll see,” Burkhard said.

On the supply side of the equation, both Burkhard and Kevin Birn, IHS Markit’s vice-president for crude oil markets, note that production from the U.S. is set to decline sharply — by three million barrels per day this year. By contrast, oil supply in Canada is rebounding and could potentially gain some market share in U.S. refining centres.

“From everything we can glean at this point, we see oilsands production largely in recovery and in different states of recovery,” Birn said. “By and large, we believe that the oilsands assets are largely in tact and will be able to ramp up.”