April 16, 2020

2020 Outlook: Social Distancing Pummels Global Oil Product Demand

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The COVID-19 pandemic and efforts to mitigate its effects have rocked the global economy with social distancing measures drastically curtailing in-person interaction and personal transportation, and related economic activities.  Major swaths of the global economy are shut down, with demand for oil products and transportation fuels seeing astonishing levels of contraction.

Stratas Advisors has modeled the economic and oil market impacts by taking into account the severity of infection and mitigation measures expected by market. The base case scenario sees massive declines in global markets in 2020, followed by a recovery spanning 2021 and 2022, with some lingering impacts even beyond 2022.

The overall view is driven fundamentally by the expectation that no complete resolution or “return to normalcy” will be possible until a vaccine is available in large quantities (currently the general expectation is that this could occur about 18 months after research efforts began).  Treatments and adaptations are expected to take hold prior to the vaccine coming to fruition, but the risk of hospitalization and/or transmission of the disease to others is expected to continue to incentivize social distancing measures for large fractions of the population in many key markets into early/mid-2021.  Ample ventilator and hospital capacity are expected by the latter half of 2020 in key markets where they are currently a constraint.

As a result of challenges in tracking and preventing the spread of the coronavirus, as well as the difficulty of ensuring entire populations comply with social distancing requirements, this outlook anticipates multiple waves of somewhat smaller outbreaks to occur at a regional level until a vaccine is readily available.  Consequently, social distancing lockdowns also need to recur, and this would suppress fuel demand.  Grimly, some markets with extremely limited financial and medical resources may see only minor impacts because they opt to attempt to maintain normal economic activity rather than endure major lockdowns.

Economically, all regions will be heavily affected by the novel coronavirus, with North America, Asia, and Europe expected to see some of the strongest impacts.  Prior to emergence of the coronavirus, the global economy was expected to grow by 2.63% in 2020, with Asia growing at 4.0% and the US growing at 2.1%.

Accounting for coronavirus impacts, global economic growth in 2020 is now expected to see a decline of -4.3%, while Asia and the US see drops of -2.8% and -7.0%, respectively.  Europe ‘s outlook flips from a 1.2% gain to a decline of -4.7%, with hard-hit Italy seeing a contraction of -7.5%.  

The worst economic and product demand impacts are expected to occur in Q2 2020, which sees a -13.0 million bbl/d YOY decline in global oil product consumption.  

In markets where mass transit systems are more prevalent, gasoline demand may be somewhat more persistent as private vehicles can be a means for sustaining social distancing during recovery phases. For the US, where more than 85% of commutes occur via private vehicles (almost all gasoline-powered), the change in gasoline demand is expected to directly reflect economic effects and social distancing measures.  The assumptions used in modeling the impact on US commutes are shown above.  Most other markets are assumed to experience a similar pattern, with variations based on their approximate workforce composition and contagion severity.  Though not apparent on the chart, the US and several European countries are expected to see 1-2% of driven commuting miles permanently lost following recovery from the COVID-19 crisis, as remote-work adaptations by businesses and workers become ingrained over the course of the next two years.

Subscribers can access the full report from our Global Refining & Products, Global Biofuels, Global Transport Fuels, and Short Term Outlook services. 
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