Oil demand is lower but it is not collapsing like it did in February
But despite demand growth stalling worldwide, oil stocks have continued to dwindle as the Opec+ alliance keeps supply in check
London — From the number of cars crossing San Francisco’s Bay Bridge to the traffic jams in Berlin and air pollution on the streets of Beijing, everything suggests that a recovery in global fuel demand is wobbling.
What the world’s not doing is heading back to the kind of historic collapse in consumption witnessed earlier in 2020, despite swathes of Europe returning to restrictive measures to combat the spread of Covid-19.
Those are the findings of high frequency data that suggest countries accounting for more than 70% of global petroleum consumption are faring a lot better this time about than during the previous lockdowns.
The data will give producers in oil cartel Opec and their allies (Opec+) cautious optimism that the market can limp through until some time in 2021, with hopes rising that a vaccine to halt the spread of the virus will help consumption to recover.
“The global oil demand recovery seems to have almost stalled” but remains robust in Asia, in particular China and India, said Bassam Fattouh, head of The Oxford Institute for Energy Studies.
On top of anecdotal evidence from streets in major cities, Bloomberg News has been tracking dozens of weekly data points for petrol and diesel demand about the world, from tolls on bridges in the US to city traffic jams in Europe. From Chinese pollution indicators to credit card activity at Saudi Arabian fuel stations.
Taken together, a picture emerges that demand may not be growing on a month-on-month basis anymore, as it did steadily since the recovery started in May. At best, it’s probably flatlining. At worst, it might be ebbing. What it’s not doing is collapsing like it did from February all the way to late April.
“The lockdown measures are not comparable to the spring and, importantly, demand in Asia is growing strongly,” said Amrita Sen, co-founder of consultant Energy Aspects. As the northern hemisphere enters winter, oil consumption should also receive a seasonal lift from heating demand.
Traffic in capitals like Paris and Madrid is lighter than a few weeks ago, but the streets aren’t almost empty like they were six months ago. Take the UK, which went into a new lockdown in early November. Schools are open this time, supporting car use. Traffic has fallen to roughly where it was in early June, down about 30% from normal levels, compared to a plunge of nearly 80% in late March and early November.
Despite demand growth stalling worldwide, crude inventories have continued to dwindle as the Opec+ alliance keeps supply in check. Floating inventories — oil kept on giant supertankers offshore — have fallen sharply recently, and to the lowest since April.
The traffic data go a long way to determining the consumption of gasoline and diesel, two products that are vital for the Opec+ producers. In less than four weeks, they will need to decide whether to hike output in January, as previously planned, or change course to keep supplies more constrained.
Top trading houses in the oil market have opposing views. Vitol Group, the world’s largest independent energy trader, has described European lockdowns as a mere “speed bump.” By contrast, Trafigura Group, the second-largest oil trader, has warned of the potential for a big drop in demand, not only in Europe, but also in the Americas.
The International Energy Agency is due to update its closely watched monthly oil market report on Thursday, providing fresh direction. For now, though, weekly data show a huge geographical split. Colonial-era terminology still lives on in the oil market, with an imaginary line dividing the world in two at Egypt’s Suez Canal.
East of Suez, as oil traders often refer to Asia, demand growth remains quite strong, supported not only by China, but increasingly by India, Japan and even South Korea. India, the world’s third largest oil consumer, posted its first year-on-year growth for both gasoline and diesel demand in October.
In an example of the recovery in Asia, ExxonMobil said its forecourts in the Asia-Pacific region were selling more petrol and diesel than a year ago by late September — the only region in the world to exhibit a year-on-year gain. The most recent traffic, pollution, and highway-use data suggest the trend continued into October, only disturbed by Chinese holiday festivities. Pollution levels in Beijing, for example, are running at the highest since March as more people drive into work, rather than using public transport.
The situation is different west of Suez. Across Europe, road usage was already waning even before a fresh round of lockdowns pushed traffic lower still. Yet, “the demand impact this time could be much smaller and focused more on some transportation fuels only,” said Eric Lee, oil analyst at Citigroup Inc.
In France, perhaps the European country under strictest lockdowns, traffic is about 25% below normal levels, compared with a 5%-10% reduction in August, according to toll road usage and traffic jams in cities. The danger for European petrol and diesel demand is that the lockdowns are either tightened, lengthened, or both. Further west, the outlook is brighter.
In the US, traffic data suggest the recovery of the past few months has plateaued. But consumption isn’t dropping like in Europe. Last week, for example, US drivers clocked 10% fewer miles on highways than a year ago. That’s below the 4% reduction of early September, but well ahead of the 49% drop in early April, when several states imposed lockdowns.
And in Brazil and Mexico, which together consume as much oil as India, traffic data also point to rising demand for transport fuels. “It seems like we may have turned the corner,” said James Allison, spokesperson for California Fuels and Convenience Alliance, a trade group representing forecourts. “The general feeling is that people are more willing to make those day trips.”
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