Oil, between SARS and the collapse of 2008

Translated from Formiche

Prior to 2020, most projections had global oil demand in 2020 growing by about 1.2 million barrels per day (b/d), with China accounting for almost 450,000 b/d of that growth. China’s oil demand is now likely to be down at least 150,000 b/d in 2020 with gasoline, diesel, jet fuel,and bunkers contracting and naphtha and liquified petroleum gas growing quite slowly.With lower growth in other Asian countries, Europe and the United States,global oil demand is now projected to contract by close to 3.0 million b/d.About 500,000 b/d of government strategic stocking will offset a bit of this decline,yielding a net contraction of 2.5 million b/d. Transport fuels are responsible for much of the contraction while industrial fuels such as naphtha, LPG and ethane have been a bit more resilient, registering quite modest growth.  

Most of the contraction in oil demand will take place in the first and second quarters of 2020. Looking towards the third and fourth quarters, there is room for cautious optimism. Medical researchers all over the world are making progress towards understanding the virus and its spread and are working on several fronts to develop vaccines. Learning from the experience in China, South Korea and Italy, countries are now far more knowledgeable about the virus and its spread than when it took the residents of Wuhan entirely by surprise. 

In considering the potential for a bounce back in demand, we can take some lessons from the SARS epidemic in 2003 and the financial crisis of 2008. SARS hit demand hard in the second quarter of 2003, but as the spread of the virus was brought under control, demand bounced back with a vengeance. As soon as COVID-19’s spread is brought under control in the new countries where it is breaking out, pent up demand should bounce back later this year. But if COVID-19 is more of a structural economic blow given its impact on the supply chain, travel, and global economic growth, then one begins to think of 2008—when oil demand did not recover until the next year. It is likely that COVID-19 will end up somewhere in between the two.

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