Just as some countries were seeing substantial declines in COVID-19 cases; it appears that a second wave of the pandemic is on the way. For the oil industry, this means more economic woes loom. According to Rystad Energy, the international market could very well see demand for oil resources dropping by 2.5 million barrels of oil per day (bpd).
Expounding further, the energy research and business intelligence company in Norway said that the second wave of the pandemic is increasingly apparent in several countries – most notably in the United States. In examining the effect of a wider ‘second wave’ scenario, Rystad Energy said it does not expect the oil demand impact to be as strong as was seen in the first outbreak, as restrictive measures will be limited to particular regions and sectors. The company noted that North America (notably the lower US states), the Middle East and Southeast Asia will be hit relatively harder.
Rystad noted that the rise of COVID-19 cases in the US is of particular concern for the oil market given the country’s high oil consumption under normal circumstances, while adding that this second wave could paralyze road fuel demand. In China, the research company said that the authorities’ response to the recent case resurgence in Beijing shows that re-imposing radical lockdown measures is still a viable option. If implemented, demand in that region will decline.
In offering his perspective on the matter, Rystad Energy’s senior oil market analyst Artyom Tchen, said that COVID-19 will also re-emerge in other regions, especially when the flu season starts in the northern hemisphere in September and October. Tchen noted however, that new waves of lockdowns in regions such as Europe, South America and Russia are expected to be more targeted and less strict as health systems will be better prepared than they were in April.
Further to this, Rystad said that the demand for total oil products would not be shared equally. Similar to the current status quo, the company said that jet fuel and gasoline would be dealt the most painful blows. But with more testing and smarter lockdowns, it opined that a lot of this destruction can be avoided. In this regard, it noted that international borders and travel can gradually reopen, with travel restrictions on certain countries and regions being imposed as new COVID hotspots appear.
In addition to this, Rystad noted that more work from home arrangements (perhaps as much as 15% of the workforce in developed countries) and less leisure travel will still pinch gasoline demand.
The energy research company in conclusion noted that if the second wave materializes based on its modeling, global oil demand will recover much more slowly in 2021, landing between four million and five million bpd lower per month, thus dragging the pandemic’s market effect further in time.
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