The historic contraction in crude oil demand hit rock bottom in April when oil prices went into negative territory for the first time in history. This unprecedented collapse has recovered to currently trade at $41.45 a barrel, according to oilprice.com, as the global economy recuperates from the height of the COVID-19 pandemic.
However, this recovery has stalled in what is the annual height of gasoline consumption in America. The recent surge in COVID-19 cases following the global economic reopening have seen worldwide gasoline demand plateau. This directly correlates to oil prices and the energy industry as, according to Transport Topics, gasoline accounts for almost one-third of the global oil refinery output.
The COVID-19 outbreak is turning back the clock on gasoline demand, which directly effects the global oil market. America remains the worldwide leading consumer in gasoline, according to Transport Topics, and is currently in the peak of driving season. While many Americans are driving at rates above peak pandemic levels, the overall consumption of gasoline remains below the pre-outbreak demand. Less travel and fewer vacations are deteriorating demand to accompany many large companies implementing an extended work-from-home structure.
Asia rebounded quicker than America as more citizens chose to commute to work via car or motorbike following their lock-down. However, as cases surge, Chinese markets are exporting barrels at a four-month high to account for swollen stockpiles.
This viewpoint from the world’s top consumers shows a bleak outlook for the oil market. However, Europe has displayed signs of optimism as Transport Topics reports that the U.K. and Spain are pointing towards a strengthening demand.
Next Phase of Recovery
The U.S. economy is anticipating a milder contraction report in Q2 than initially expected in April’s projections as stated by S&P Global. The overall economic recovery is expected to take hold starting in Q3 barring a second wave of COVID-19 that forces strict lock-down measures.
Cases are currently spiking in Florida, Texas, and California which account for 28% of the nation’s GDP and 27% of the country’s gasoline consumption. The U.S. Energy Information Administration stated that oil demand rose to 8.6 million barrels per day in June, an increase of 3.5 million barrels per day from April’s average. S&P Global states that as unemployment remains at the highest levels since the Great Depression and COVID-19 cautions remain in place around the globe, business travel has minimized. This means that the demand recovery has plateaued as current consumption is through an increase in discretionary travel rather than for business needs.
As the oil industry works towards full recovery, the unemployment rate must decrease significantly to boost demand. This next phase of recovery is solely dependent on the containment of COVID-19 as governors are feeling the pressures to revert to more strict social distancing measures.
The American Petroleum Institute states that Oil & Gas account for nearly 8% of GDP in America and support nearly 10.3 million jobs. This industry was hit at an historic level at the height of the pandemic, and gives great indicators to the health of the economy.
April’s 48.3% year-over-year decline saw a rebound in June, however, this recovery has yet to reach 2019 levels. As the industry remains in contraction, the recovery measures show that the recent increase in consumption is related to a decrease in the use of public transportation with an uptick in discretionary travel. This has resulted in a demand plateau as the rebound of gasoline consumption is not a result of recovery in unemployment rates or business travel.
As COVID-19 cases continue to spike, the United States and China have seen a stall in overall demand. China has seen a rise in oil exports to alleviate their inventory while three of America’s largest state economies are seeing a rebound of COVID-19 cases.
The full recovery of this industry is dependent on an economic rebound with the absence of another full-scale lockdown. However, as the virus continues to effect everyday life, consumers may change behavior and business travel may diminish. The immediate future does not have a prediction of bottoming out, but a prolonged outbreak of the virus could have lasting effects within the global oil market.