As we enter the second half of what is proving to be a tumultuous and unprecedented year for economies generally, and oil markets in particular, let’s revisit the outlook for the remainder of 2020 for crude oil demand. The lockdowns due to the COVID-19 pandemic and corresponding economic collapse resulted in material demand destruction for crude oil – when large portions of the travelling population are homebound for months, that weighs heavily on transportation fuel demand. Global liquids’ demand in 2Q2020 fell about 20% to 81 MMb/d from the average of 99.9 MMb/d in 2019. As economies emerge from lockdowns, the sense continues to be that 2Q2020 is the bottom, and the second half of the year has an improved oil demand outlook. The question, however, is how quickly and to what extent the recovery will take.
The figure below shows recent June quarterly forecasts for 2020 from the IEA and EIA benchmarks, as well as BTU Analytics. EIA and the IEA both anticipate demand to bounce back to 1Q2020 levels or about 95 MMb/d in the third quarter, though this is still about 7% below 2019 exit levels. However, demand may still need to grow significantly in 3Q2020 to hit these levels. At the end of June, Saudi Aramco placed global oil demand at 90 MMb/d still 5 MMb/d below the 3Q demand estimates from the EIA and IEA. BTU Analytics remains more bearish on the pace of demand recovery in the 3Q and 4Q as seasonal trend factors and gains from the easing of lock-downs moderates the likely gains through the end of the year.
As the full impact of COVID-19 lockdowns became apparent over the first half of the year, there have been downward revisions for demand forecasts for 4Q2020. The figure below shows how 4Q2020 global liquids’ demand forecasts have trended over the past four months for the EIA, IEA and BTU Analytics. Forecasts done in March for 4Q2020 were performed before the true trajectory of the 2Q2020 collapse was understood, reflecting levels more in line with the end of 2019. By April, lockdowns were in full force across the US and Europe, with the EIA anticipating a more “V-shaped” recovery for the end of the year. The EIA’s outlook for 4Q2020 has shifted down over the past months to settle at about 97 MMb/d. The IEA has also shown gradual decreases forecast over forecast, also anticipating 97 MMb/d. However, in IEA’s latest forecast they state significant concern about demand in the 4Q2020 given rapidly increasing virus counts, particularly in America’s, and that the risk is certainly to the downside for their forecasts. BTU Analytics has continued to anticipate a slower recovery for demand, reaching about 94 MMb/d or about 6% below 2019 levels.
There is continued uncertainty on how the pandemic will play out through the remainder of the year. The recent increase in COVID-19 cases, particularly in Southern US states, and rumblings of limits on economic re-openings as well as potential reintroduction of partial lockdowns provides continued risk to the downside for oil demand. Check out the Oil Market Outlook to keep up to date on how global demand is trending in these volatile times, as well as the supply side of the equation, and global supply-demand balances.