The IEA came out with a rather bullish remark for oil this morning, stating that peak demand is still years away.
The agency's chief Fatih Birol said that "In the absence of strong government policies, a sustained economic recovery and low oil prices are likely to take global oil demand back to where it was, and beyond,".
While there's reason to be optimistic about the demand recovery in oil, given new data on oil consumption from China and the U.S., a full recovery could take much longer this time around compared to the 2008/2009 crisis.
The world's two largest crude oil consumers, the U.S. and China, have both seen a rather quick recovery in gasoline demand, with the demand for distillates lagging a bit behind in the U.S.
Bloomberg's Javier Blas projected that U.S. gasoline demand was on course to reach 8 million barrels just ahead of memorial day weekend.
In the meantime, IHS Markit data suggests that China has seen oil demand bounce back even faster, with demand levels in April reaching 89 percent of April 2019 levels. Jim Burkhard, VP and head of oil markets at IHS Markit expects crude demand to reach 92 percent of May 2019 levels this month, stating that "The brisk resumption of Chinese oil demand, 90 percent of pre-COVID levels by the end of April and moving higher, is a welcome signpost for the global economy. When you consider that oil demand in China - the first country impacted by the virus - had fallen by more than 40 percent in February, the degree to which it is snapping back offers reason for some optimism about economic and demand recovery trends in other markets such as Europe and North America,".
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In Europe, COVID-19 cases have peaked, and new hospitalizations and infections have declined in May, leading to the reopening of economies and an increase in road fuel consumption. Consultancy Rystad now estimates that total oil demand in Europe for 2020 is forecast to fall by 1.8 million bpd to 12.4 million bpd, a 13.2 percent decline from 2019's 14.2 million bpd, and that total demand is set to recover to 13.6 million bpd in 2021, led by a recovery in road fuels.
Whether the bounce in demand will prove sustainable is hard to say. Fears of a deep global depression and millions of layoffs are not unfounded. The magnitude of economic destruction is much greater than during the last crisis, and many fear that jobs that have been lost may not come back.
Researchers at the University of Chicago's Becker Institute for Economics estimate that 42 percent of jobs could be permanently lost. The staggering number of job losses and the vast amount of companies that have shifted to a work-from-home environment could make it much harder for oil markets to recover.
Looking at the IEA's bullish message; before the pandemic struck, the agency said global petroleum consumption was likely to reach about 105 million barrels a day by 2030 and about 106 million by 2040 in the absence of new government policies. The agency may well have to adjust these numbers as oil demand growth over the next 5 years is unlikely to be significant given the long-term challenges for the industry.
By Tom Kool of Oilprice.com
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Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More