BAKU, Azerbaijan, June 15
By Leman Zeynalova – Trend:
Global demand is currently running at slightly below 88 percent of pre-virus levels, Trend reports citing the US JP Morgan Bank.
“While this is better than the 76 percent averaged in April, it still points to a slow and laborious pace of recovery: it took the global oil market two months to recoup 12 percentage points of lost demand—hardly a V,” the bank said in its report.
JP Morgan analysts noted that the inability to scale up refinery runs and poor refining margins globally confirm our conclusion that demand has been slow to normalize.
“The potential for second-wave of infections—and resulting return to lockdowns—is a key variable in demand recovery. In the US, several states, including Arizona, Texas and Florida, have reported rising numbers of infections, while Oregon, Utah and Tennessee have paused plans to end shutdowns. In China, Beijing closed the city’s biggest food market over the weekend and put the nearby residential districts in lockdown amid a new cluster of COVID-19 cases linked to the market,” reads the report.
Another major uncertainty regarding oil's demand recovery is to what degree the world's upturned work and social behavior have taken root and will persist long after the lockdown measures are lifted, according to JP Morgan.
“We conclude that China is unique in its demand patterns and its example shouldn't be extrapolated to the rest of the world. Apart from policy-incentivized buying (in addition to Beijing pulling forward the second round of quota allocations to bring in more crude at a time when flat prices are low, state-mandated prices for domestic wholesale gasoline and gasoil prices are capped at $40/bbl oil, incentivizing imports of products), China’s mandate to drive to work rather than take public transport has distorted driving behavior—a pattern that has not been replicated anywhere else in the world yet,” the report says.
Given that driving accounts for 45 percent of global oil demand across all fuel types and the US holds the crown with its 27 percent share of global road demand, we develop a framework to more precisely forecast the medium-term recovery in US gasoline demand, said the bank.
“Overall, we conclude that US gasoline demand will exit 2020 averaging around 8.4 mbd, keeping global gasoline demand around 25 mbd in 4Q20, or 5 percent lower yoy. We adjust our model accordingly, resulting in global oil demand averaging 96.0 mbd in 4Q20. This compares to around a 97 mbd consensus view. Our updated supply and demand forecasts continue to point to the first global crude oil deficit emerging in July but slightly looser balances in 2H20 and 2021. We maintain our view that prices will pull-back to average $36/bbl in 3Q, and reset to $41/bbl in the final quarter of this year,” reads the report.
---
Follow the author on Twitter: @Lyaman_Zeyn