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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Oil Demand Won’t Bounce Back Anytime Soon

Oil tanks

Oil demand is expected to be down by nearly 30 million barrels per day (mb/d) in April and down by almost 10 mb/d for the entire year, according to the latest estimates. But some forecasts still optimistically assume that demand bounces back in the second half of the year, a scenario that may not come to pass.

Since February, investment banks repeatedly revised down their numbers with each passing week. It took until April for the consensus to arrive at a temporary demand hit of 25 to 30 mb/d. However, many forecasts still assume the global economy rebounds after the second quarter in a “V-shaped” recovery.

For example, the IEA’s latest Oil Market Report, released on Wednesday, painted a dire portrait of global demand, but it nevertheless assumes that there is a resurgence in demand close to normal levels by the end of the year.

But there are multiple reasons why the global economy may not return to anything close to “normal” even by the end of 2020.

One of the principle reasons should be an obvious one – the global pandemic is far from over. The rate of infections in Europe and in some parts of the U.S. has flattened, sparking calls to lift stay-at-home orders. But glimmers of hope may be misleading. “The problem is that most countries have an overall infection penetration below 5%. The moment the restrictions are relaxed the daily infection rates will spike back up again,” Bjarne Schieldrop, chief commodities analyst at SEB, said in a report.

“Thus, rather than moving from ‘deep-freeze lock-down’ in Q2 and then directly to ‘all-back-to-work’ in Q3 we are more likely going to move to ‘semi-lock-down’ as well as repeated start-stop, start-stop moves going forward as governments try to ease restrictions but then must pull back again as infection rates revives again,” Schieldrop warned.

Premium: There Is Still Hope For Oil Prices

SEB agreed with the broader consensus that the low point for oil demand will be April and May. But the bank said that demand won’t simply bounce back after that. “Covid-19 is basically still ahead of us. The road to oil demand normality may thus be much more muted than V-shaped,” Schieldrop concluded.

Current WTI and Brent futures assume $40 per barrel in 2021, based largely on the hopes of a V-shaped bounce back. Schieldrop said that there is a “high risk” that the optimism surrounding a V-shaped recovery will be dashed in the next two months, which could reset price expectations for the next year or two.

The second reason why demand may not bounce back (and obviously related to the first) is that the global economy is in trouble. Just days ago President Trump said the economy would “boom” once the lockdown measures are lifted.  

But a new working paper from the National Bureau of Economic Research says that U.S. GDP could contract by 11 percent in the fourth quarter of 2020, year-on-year.

The International Monetary Fund warned that the world is facing the worst downturn since the Great Depression in the 1930s. “The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes,” Gita Gopinath, IMF chief economist, said this week.

An estimated 22 million people filed for unemployment insurance in the last few weeks in the U.S., and many of those jobs may not come back later this year.

Ultimately, economic activity may not rebound until a vaccine is readily available, or at least a robust system of testing that allows for a reopening of sections of the economy. As the New York Times notes, there is data showing a hit to regional economies in the U.S. that in some cases preceded lockdown orders, evidence that people stayed home and held back spending on their own, fearing the virus.


That means that simply lifting stay-at-home measures does not return the economy to “normal.” A lot of people will likely continue to stay home until they feel safe.

That is a message that CEOs of major businesses themselves made to President Trump on a conference call on Wednesday.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • K Martin on April 16 2020 said:
    Scare tactics... I bet every time there is a dip in the oil charts, it was the end of the world and oil was going to zero. Let me say this right here and right now, oil is not going to continue declining chicken little. There are a lot of smart people in the oil industry and if you think all those smart people are going to let this collapse, well, that's just naive.
  • Mamdouh Salameh on April 17 2020 said:
    The litmus test for both the global economy and the global oil demand is the duration of the lockdown. If the global lockdown is eased in major economies like the United States, the European Union, Japan and South Korea, then we could expect a bounce back in the second half of this year.

    A case in point is China which is back in vengeance. The restarting of China coincides with the shutting down of most of the world’s economy causing lower commodity prices. Every crisis offers opportunities, including this one. China is seizing the opportunity of super-low oil prices to expand its strategic oil reserves before prices rise again. It also includes other commodities such as LNG.

    Chinese companies imported about 1.26 million tons of LNG in the week of March 23, which is the first time it’s risen above the 2019 weekly average. Demand has been driven by smaller players with storage capacity, who are emerging to take advantage of low spot prices. This is good news for the global LNG industry.

    Still, global oil demand will face an uphill battle to deplete the huge glut that has accumulated during the global lockdown and which is estimated by some accounts at 1.8 billion barrels between global stored oil and excess oil in the market.

    China’s economy might just act as the catalyst that will accelerate the revival of the global economy and oil demand.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Brent Jatko on April 17 2020 said:
    As far as fossil fuels for transportation, I hope the recovery is more of an "L" shaped one.
  • Billy Simms on April 17 2020 said:
    I get what you're saying but I think you underestimate how sick and tired people are of being at home. Everyone is all pent up and ready to get out! I don't think it will be a "V" recovery, but it will recover at a rapid pace, along with the uplifting of restrictions. I'm already seeing it today, without lifting restrictions. People are done with staying at home.
  • Jenny Gonzales on April 17 2020 said:
    Hey I wasn't sure if you thought that oil prices were low, not bouncing back any time soon and that the shale industry is dying, from your last 30 daily articles. Thanks for writing this article and clearing that up for us. How do you manage to wake up every day and compose essays full of doom and gloom, considering that you must be ecstatic from earning millions of dollars with your ability to see the future?

    I think this sharp decrease in the demand for oil & COVID 19 is nearly over, there will be a fast rebound in demand. Mark my words: Trump reelection, economy better than it was by the end of the year, 40$+ oil in 2021 for sure.

    Even if bad times persist, many companies have strong enough balance sheets to survive. Those companies will benefit from this situation. Low prices will reduce the supply to meet demand. When demand suddenly rebounds rapidly when COVID ends, low prices and reduced supply will "fuel" more rapid demand growth.

    Your arguments are pretty convincing, but they fail to account for the nonsense reality we live in now. Trump is President, the fed can reinflate bubbles, coronavirus halted the world out of nowhere. The unlikely is probable now. Just my thoughts, take care brother

Leave a comment

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