Crude oil demand could recover to levels last seen before the coronavirus pandemic sometime next year, Russia’s Energy Minister Alexander Novak told German daily Handelsblatt in an interview.
“Of course, it won’t happen this year,” he said, referring to the recovery in oil demand. “We hope it will happen next year, but it could take another two or three years.”
Novak’s comments come on the heels of a statement by the head of Russia’s sovereign wealth fund, Kiril Dmitriev, who said there was no point in extending the deepest OPEC+ production cuts beyond the end of July, suggesting that the oil market should be nearer balance by then.
Oil demand has been recovering across the world as pandemic-forced national lockdowns began to be lifted and borders reopened. However, the situation is still very fragile, with little clarity as to whether demand will in fact improve to pre-crisis levels, especially given plans for a green recovery in Europe, which will be tied to lower oil consumption.
One thing, however, seems to unite forecasters: the expectation that this oil demand recovery will take a long time. One reason for this is a permanent change in consumer behavior, prompted by the pandemic, including less commuting because of permanent work-from-home options, and less international travel for fear of infection. Another reason is the economic fallout of the pandemic, with high unemployment, reducing consumers’ ability to spend. Related: Rebound In Oil Prices Helps Prop Up Midstream Sector
According to the International Energy Agency (IEA), oil demand will take over a year and a half to (potentially) return to the levels before the pandemic. This year, demand is expected to drop by 8.1 million bpd, the biggest-ever decline, the IEA said in its latest Oil Market Report for June.
OPEC expects an annual decline in demand of 6.4 million bpd for the second half of the year, after an estimated 11.9-million-bpd contraction over the first half.
According to Moody’s, oil demand may well have peaked last year and will never recover to pre-crisis levels.
By Irina Slav
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My assessment is based on the speed by which China recovered its oil demand and crude oil imports. Within less than two months of exiting the lockdown, it was able to lift both its crude oil imports and its demand to 2019 levels despite a loss of an estimated 20% of its oil demand during the COVID-19 pandemic. If demand by the rest of the world grows at quarter the speed of China’s, it will even exceed the 2019 levels sometime in 2021.
Despite an estimated loss of 30%, global oil demand will amount this year to 98.34 million barrels a day (mbd) or a mere 3 mbd less than 2019 level of 101.34 mbd with projections indicating that by 2021 global oil demand will more than match 2019 levels.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London