Second wave keeps rolling on

• Date: 01 January 2021
• DOI: http://doi.org/10.1111/oet.12835
• Published date: 01 January 2021

LOOKING AHEAD

Second wave keeps rolling on

The Covid-19 pandemic has once again gained ground in

the United States and Europe, leading to another fall in

oil demand due to the associated restrictions and behav-

ioral changes. However, other regions are less affected

this time, and the prospect of widespread vaccination

means the medium-term outlook is more buoyant.

Transport fuel demand in Europe's biggest economies

fell again through November and December, after gov-

ernments announced a new round of curfews, lock-

downs, and travel limits to check surging Covid-19

infection rates ahead of the Christmas and New Year hol-

idays. Among the worst affected was the United King-

dom, where a new more contagious strain of the virus

was identified. Average mobility indexes provide a good

indication of transport fuel demand, and these fell to

their lowest levels in November since the first wave eased

off in May, according to Google data. Latest figures for

Germany the United Kingdom, France and Spain show

they were 31.6% below precrisis levels in the week up to

16th December, are and likely to have fallen further in

the final couple of weeks of the month as restrictions

were tightened, especially in the United Kingdom.

Rystad Energy estimated that 900 000 bpd was cut

from European road fuel demand in November. Gasoline

demand in the region is now expected to fall from

1.96 mn bpd in 2019 to an average of 1.64 mn bpd in

2020 (down 320 000 bpd or 16% year on year). And jet,

which is still the worst affected refined product by far, is

expected to see demand fall 655 000 bpd in December on

the year, against an average demand of 1.57 mn bpd in

2019.

1

The weaker demand has backed up oil supply,

with refined product stocks in the key Amsterdam-Rot-

terdam-Antwerp region up sharply over recent weeks,

while refinery margins remain weak. The rising case

numbers in Europe led the IEA to cut its estimate for

2021 global oil demand by 170 000 bpd in mid-December,

with the group also citing pessimism over a quick return

to air travel due to likely delays in vaccine rollouts.

Global oil demand is expected to contract by 8.5 mn bpd

in 2020, with Europe accounting for around 1.6 to 1.8 mn

bpd (a fall of 15%) of the total, according to S&P Platts

Analytics.

In the United States, case numbers have also been ris-

ing, and average road congestion in the country's biggest

five cities stood around half year-ago levels in the week

to December 13th, compared with 61% at the end of

November, according to TomTom data. US restrictions

are decided at a state level, so the impact on demand has

been patchy. Overall, this has left US road fuel demand

at about 10.3 mn bpd in December, or 16% below pre-

virus levels, Rystad estimates, with gasoline demand at

7.92 mn bpd—the lowest since mid-June. In California,

where a near state-wide lockdown was introduced in

early December, driving activity was the lowest since the

height of the first wave in mid-May. The transportation

sector accounted for 28% of US total energy consumption

in September, according to latest data from the EIA.

2

Total energy consumption in this sector fell from 2.3 qua-

drillion Btu in September 2019 to 2.1 quadrillion Btu in

September 2020, a 10% decrease.

The latest dip in transport fuel demand has pushed up

inventories, with US gasoline stocks rising for a fifth

straight week up to the week ended December 11th to

4.3% above the 5-year average at almost 240 mn barrels,

according to the EIA. Product stocks also rose elsewhere,

with inventories at the key UAE port of Fujairah reaching

their highest level since the end of August in the middle

of December, at almost 25 mn barrels. Reduced gasoline

demand also drove down refining margins, although on

the US Atlantic Coast, Bakken cracking margins edged

up to $3.61/bl in early December, according to Platts data,

before weakening again as new restrictions were imposed

in New York.

Away from North America and Europe, however, the

situation is more buoyant. For example, in India, where

there had been a significant outbreak and restrictions ear-

lier in the year, demand is on the rise as Covid-19 case

numbers come down. Similarly, much of East Asia is

close to normal for road transport demand, although

international air travel remains subdued, capping any

recovery in jet fuel demand. But even in Asia, there are

concerns that the latest more contagious strain of the

virus could spread from the United Kingdom and drive

up contagion rates again before vaccines can be widely

administered.

Vaccine administration is furthest ahead in the United

Kingdom, where the case numbers are rising fastest (as of

end-December), and it is hoped that up to 20 million peo-

ple could be immunized there by Easter, which should see

case numbers fall back sharply and transport fuel demand

rebound—although the next couple of months could see

lower activity rates than even December. “While a

10