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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 Markets May Not Fully Recover Until 2022

permian rigs

Oil demand may not recover to pre-pandemic levels until 2022 at the earliest, according to a new report from the International Energy Agency (IEA).

The surplus of crude oil sloshing around the world has narrowed quicker than expected, owing to a severe drop in supply and a quick rebound in demand in some parts of the world after a record drop in consumption. 

Global supply fell by 12 million barrels per day (mb/d) in May, year-on-year, due to the roughly 9.4 mb/d of cuts from OPEC+ along with sharp curtailments from non-OPEC countries.

China’s “strong exit from lockdown measures” saw Chinese demand in April almost back to normal levels, the agency said. The further easing of lockdown protocols around the world will likely lead to rebound in demand in the second half of 2020, although Beijing said on Tuesday that all schools will temporarily shut down in the capital due to new coronavirus cases, highlighting the persistent danger of the pandemic. It’s unclear what this means for the Chinese economy going forward.

Oil demand is expected to fall by 8.1 mb/d in 2020 on an annual average basis, the largest decline ever recorded, according to the IEA.

In 2021, demand rises by 5.7 mb/d, a huge increase, but still falling short of pre-pandemic levels. At 97.4 mb/d, the forecasted consumption for 2021 will be 2.4 mb/d below 2019 levels, although the IEA warned about significant uncertainty to all of these projections. The IEA’s forecast only goes through 2021, which means that it may take until 2022 at least for demand to fully recover, if it ever does.

Road traffic has seen somewhat of a V-shaped recovery, not just because of the easing of lockdowns but also because more people are resorting to cars instead of mass transit. Meanwhile, much of the lingering demand destruction is concentrated in the aviation sector, which is facing an “existential crisis,” the IEA said. Passenger traffic this year could be down 55 percent compared to 2019, according to data from the International Air Transport Association. Related: Smart Money Is Betting On These 5 Exciting Energy Technologies

On the supply side of the equation, substantial scars also persist. Global production is expected to fall by 7.2 mb/d this year, and only rise by 1.8 mb/d in 2021. $40 oil is not high enough to support a rebound in U.S. shale, the IEA said.

Indeed, the rig count continues to fall, dipping below 200 last week, a record low. U.S. shale production is expected to decline by another 93,000 bpd in July, according to a new assessment from the U.S. EIA. The Permian basin is only expected to lose about 7,000 bpd, perhaps with losses made up by the restart of shuttered wells. Other shale basins fare worse – the EIA sees production losses next month of 28,000 bpd in the Eagle Ford; 25,000 bpd in the Niobrara; and 26,000 bpd in the Anadarko.

Analysts differ on what happens next. The IEA’s message is more upbeat, but others warn about lingering risks. Much of the market thinks that the coronavirus pandemic is “just a short-term blip, and that oil demand will soon return to its previous path,” Standard Chartered analysts wrote in a note on June 11. “We think that much of the market is ignoring the downside risks to demand arising from both economic weakness and permanent changes in patterns of energy use.”

Also, there is no one single uniform experience. The coronavirus is hitting different countries in different ways. Bank of America Merrill Lynch says that unlike the global financial crisis of 2008-2009, which was felt most acutely in OECD countries but spared emerging markets to some degree, the pandemic may end up having the opposite effect. “[I]nitial data from Europe points to increased work-from-home trends. This shift may protect advanced economies focused on sophisticated service industries such as education, finance, or information technology, but hurt those countries more reliant on tourism and basic industries,” the bank said.


By Nick Cunningham for Oilprice.com

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  • Maxander on June 16 2020 said:
    Coronavirus pandemic is already seeing drop at several places & better ways of treating the infection leading to further drop in severity of infection.
    & majority of the population will already have antibodies by the end of July, Aug which will lower the death rates, increase immunity against disease.
    We are still in first wave of infection right now which will be under control by Aug end.
    Second wave may begin by Dec or next year but again due to better treatments, vaccines, developed immunity will help second wave of infection almost 70-80 % lower in terms of severity, death rate.
    So, major oil demand will come from 2021 & may even break all records.
  • Mamdouh Salameh on June 17 2020 said:
    If I were you, Mr Cunningham, I wouldn’t give much credence to what the International Energy Agency (IEA) says since it bends with the wind to suit its political leaning.

    Starting with China which accounts for 80% of global demand growth, 15% of demand and 16% of global crude oil imports, its own demand and its imports are already back to 2019 levels. Furthermore, China is on the way to full economic recovery by the end of the year. This is the more impressive given that many analysts estimated that China’s crude oil demand lost 20% and its economy shrank by more than 6.0% in the first quarter of the year during the pandemic. China’s economy is projected to grow at 6.8% in 2021 compared with 6.1% in 2019.

    China is pulling the global economy out of its ordeal. My projection is that global oil demand will end the year at 98.34 million barrels a day (mbd), a mere 3 mbd less than 2019 level of 101.34 mbd. By the end of 2021, global oil demand is projected to more than match 2019 levels.

    And with rising China-led demand and a major decline in supply emanating from the OPEC+ production cuts and a continued steep decline in US oil production to an estimated 7-8 mbd in July, the glut in the market will start to deplete fast. The US shale oil industry will be struggling to produce even 7 mbd in the next two years necessitating a rise in US crude oil imports from 9 mbd in 2019 to 11-12 mbd in the next two years.

    And even if there was another wave of the COVID-19 pandemic, countries of the world are now far more capable, better equipped and more experienced to deal with it than they were six months ago.

    Therefore, there might not be any impact on oil prices. Moreover, oil prices are projected to hit $45-$50 a barrel in the second half of this year and touch $60 in early next year.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Maxander on June 17 2020 said:
    I think Oil demand will be around 100-102 mn bpd by Dec 2020 end.
    China's oil demand has bounced back to 90% & now India which is yet to open fully will see its oil demand bouncing back by 80-85% by july beginning.
    So, I think the scare of oil demand not coming back will get its answer by July end completely.

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