Stratas Advisors has updated its prior analysis (posted on April 10th, 2020) of the economic and oil market impacts of the COVID-19 pandemic, based on the latest information available. The overall view remains driven fundamentally by the expectation that no complete resolution or “return to normalcy” will be possible until a vaccine is available in large quantities; based on recent news reports, this is now expected to occur as early as Q1 2021. Stratas’ original view anticipating multiple waves of outbreaks at the regional level (including within countries) prior to vaccine availability appears to be holding true, as evidenced by the varied timings of peaking infection rates amongst different countries and within the US, for example.
The volatile economic environment has also shifted from Stratas’ April expectations, with certain Asian markets, including China and India, expected to perform better than previously anticipated, along with the US.
In terms of breakdown by product, the milder decline in 2020 demand is largely a function of a more moderate drop in gasoline demand (-10.2% globally compared with April estimate of -14.1%), with expectations for jet fuel and gasoil holding relatively steady. The change in the gasoline estimate stems in large part from upgraded GDP outlooks for the US and China, and resilience in private vehicle use in both countries. Overall, social distancing effects on gasoline, jet fuel, and diesel demand account for a slight majority of the total 7.95 million bbl/d projected decrease in product demand in 2020.
Source: Stratas Advisors
Stratas Advisors’ expectation of more resilient gasoline demand in areas/cities normally dependent on mass transit appears to be reflected in several markets, including China, as private vehicles can be a means for sustaining social distancing during recovery phases or for essential workers. This phenomenon may also be occurring in urban areas in the US northeast, helping to support US gasoline demand in Q2 2020.
The figure below shows Stratas’ forecast for US social distancing and the pandemic’s effects on commuting behavior from April 2020; the broad strokes of the projection appear to have been borne out by developments since April. A secondary wave of lockdowns has not yet occurred and may not materialize fully until August rather than July, but the US pattern of infections thus far supports this general prediction. The anticipated summer subsidence—speculated to be a function of warm weather impacts on the coronavirus—now seems unlikely. However, heightened or improved mitigation measures in the very short term, combined with efforts at opening schools in fall 2020, is likely to result in some reduction of social distancing by September/October. This may further be incrementally assisted by higher levels of COVID-19 immunity resulting from the summer outbreaks, though antibody protection against COVID-19 is currently speculated to last only a few months.
Source: Stratas Advisors
The US is still expected to see some permanent loss of commuting miles resulting from adaptations to the pandemic, even if the vaccine becomes available in early 2021 compared with the April expectation of end-2021.