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Julianne Geiger

Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.

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The Real Oil Demand Shock Is Yet To Come

Oil demand has been revised downward several times since the start of the year by nearly every analyst or banking institution thanks to the devastating impact of the coronavirus. With the number of coronavirus cases in China--the world’s largest oil importer--seemingly leveling off in recent days, some may be taking the view that the worst of the oil demand shocks is now behind us.

But more shocks are on the horizon as the world’s number one crude oil consumer--the United States--begins its own war on the deadly virus.

When China first issued travel bans in its areas hardest hit by the coronavirus, or COVID-19, oil demand took a beating, and analysts tried to work out just how much oil demand would be lost. As it became clear that China didn’t have the situation contained, other countries closed their borders and halted or tapered air travel, worsening the demand outlook. 

On Wednesday the World Health Organization (WHO) officially declared the COVID-19 situation a “pandemic”, adding in an opening statement to its Wednesday media briefing that “we are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction.”

The reclassification as a pandemic, along with the rather rich chiding by the WHO, which in January advised against travel restrictions. 

“Although travel restrictions may intuitively seem like the right thing to do, this is not something that WHO usually recommends,” Tarik Jašarevi?, a WHO spokesperson, explained at the time. “This is because of the social disruption they cause and the intensive use of resources required.”

No Europe to US Travel 

Nevertheless, late Wednesday night, US President Donald Trump halted all travel from Europe, except from the UK, to the United States for the next thirty days to contain the virus that has plagued Europe. 

This is exactly the kind of action that ate into oil demand in China. The IEA warned last month that oil demand for Q1 would sink 435,000 bpd--and that’s when the virus was contained mostly to China. Related: Energy Stocks Battered As Market Meltdown Continues

As of 2017, the US consumed 19.96 million barrels per day of crude oil and petroleum liquids--this accounts for 20% of the world’s oil consumption, according to the Energy Information Administration (EIA). 

To compare, China consumed 13.57 million barrels per day in 2017.

And in the United States, it’s more than just a travel ban that will hit oil demand. 

A full-on panic has set in, resulting in daily household items being out of stock in most stores and online--including hand sanitizer, antibacterial soap, and toilet paper. This is people preparing for hunkering down, checking out, and avoiding crowds.

You know it’s bad when...

We love our sports. But even a billion-dollar sports machine cannot claim immunity from the virus. On Wednesday, the NBA canceled the entire season after one player tested positive for the coronavirus. On Thursday, the NHL said it was canceling the rest of its season, too, which includes 189 games. Also following suit, MLB is expected to suspend operations.

This level of canceling activities is unprecedented in professional sports, and it will surely eat into oil demand as fans and teams will have no need for travel to events that aren’t taking place.

States of Emergency

Michigan, Tennessee, California, Massachusetts, Washington state, Washington D.C., Arizona, Colorado, North Carolina, Alaska, New York, Ohio, Wisconsin, Kentucky, Florida, and more have all declared states of emergency.  Related: Traders Are Making A Killing In The Oil Price War

In Michigan, all public universities have shut down and converted to online classes. Courts are stopping jury trials, and the governor has recommended that any gatherings of more than 100 people be canceled--this stifles economic activity and in turn, the demand for fuel and oil.  

While New York--a city with a population of nearly 9 million--is trying to avoid going full-Italy, but while the schools and subways may stay open for now, Broadway may get shut down. Broadway entertains 14 million people a year. 

In California, a state still reeling from the blackouts, some schools--including UC Berkeley and Stanford--are shut down, Hollywood is canceling releases. Business travel has fallen off, convention interest has been scaled back, and this sector is unlikely to recover this year.     

From zero to negative territory?

OPEC was the most recent body to revise down its oil demand growth, from 980,000 bpd for 2020 last month, to 60,000 bpd--essentially a zero growth forecast. As people stockpile necessities preparing to stay home, sporting events and other entertainment canceled, and academic institutions sending kids home, the demand growth for oil is set to take additional hits. 

Expect further analyst revisions in the coming month, and look to the number of confirmed US coronavirus cases and public sentiment as a bellwether for oil demand growth’s--or loss’s future.

By Julianne Geiger for Oilprice.com

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Leave a comment
  • Nessy Oil on March 12 2020 said:
    The oil builds In the US will be epic. It’s not like you can turn that oil tanker around that was shipped a month ago or the pipelines out of Canada. Could be a 40 million barrel oil and product build several weeks in a row If not larger

    If we don’t see a $2 in front of oil futures we’ll then the basis will be $10 to $15 under instead and everyone will be trying to deliver on WTI
  • Rico Zepolo on March 13 2020 said:
    In the United States, it’s more than just a travel ban that will hit oil demand.
  • Mamdouh Salameh on March 13 2020 said:
    A demand shock works both ways either depressing global oil demand or stimulating it significantly. So far we have only seen downward and pessimistic revisions of oil demand as a result of the coronavirus outbreak.

    But what happens after the outbreak is contained and the global economy resumes its normal activities. My bet is that China and to some extent the whole world will behave like a person who has been starved of food for a long time so their appetite would be rapacious for crude oil imports meaning that they will most probably double their imports of crude.

    That is why I have been saying for quite a while that when the outbreak is declared over, global oil demand and prices will rebound quickly recouping all their previous losses.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Steve S on March 13 2020 said:
    Wow lots of fear monger omg here..

    You short Oil?!

Leave a comment




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