A year on, top oil consumers await demand rebound as pandemic retreats

London — One year after the World Health Organization declared COVID-19 a pandemic, oil demand indicators in some of the world's biggest economies are gradually improving but remain well below pre-crisis levels and have yet to even recover from a wave of second-wave restrictions imposed in late 2020, according to the latest mobility data.

With global infections peaking in mid-January and vaccinations now rolling out in many countries, demand indicators have been rising as most governments plot a cautious lifting of travel and other activity curbs.

In the US, the world's biggest oil consumer, mobility levels climbed to around three-quarters of pre-crisis levels in the first week of March, up from a recent low of 60% at year-end, according to data reported by Google based on activity in workplaces, retail and recreational sites, and transport hubs.

Often used as a proxy for land-based energy demand, the data showed that India, the world's number three oil consumer, is one of the few countries that has seen a sustained mobility recovery with levels now just 12% below pre-crisis levels.

Other top global economies have not fared so well.

The resurgence of COVID-19 deaths in Brazil in recent weeks has seen mobility backtrack in recent weeks. Sao Paulo state, Brazil's biggest fuel consumer, is set to implement new a lockdown this month. In Europe, which lags the average global mobility recovery, a new outbreak in Italy has also hit oil demand markers.

Overall, average mobility in the US, India, Brazil, Japan and Germany, stands some 22% below pre-crisis levels, the data showed, down from levels seen in late December and short of the post-pandemic "high" of 17% below pre-crisis levels on Oct. 28.

Air travel takeoff?

Global air travel data, a key marker for jet fuel demand, also shows an upward swing in activity over the last month but remains about a third below year-ago levels and 41% below the same time in 2019, according to tracking data from AirNav.

Commercial flights globally bottomed out at 80% below 2019 levels at the peak of lockdowns in April last year and the sector is expected to continue to suffer from lower travel well into the current decade. In China, which is not covered by the Google mobility data, domestic air traffic has continued to rebound and now exceeds pre-crisis levels but international travel from the country is 63% below 2019 levels, AirNav data showed.

In Western Europe, which already has the highest percentage of lost airline capacity globally, seat capacity remained at 78% below pre-pandemic levels on March 8, according to aviation data provider OAG.

Despite the cautious recovery in oil demand indicators since infection rates last peaked, most market watchers anticipate a pick in activity later this year as mobility and travel restrictions are eased.

S&P Global Platts Analytics projects that world GDP will expand 5.1% in 2021, up from a previous projection of 4.9%, supported by better-than-expected economic indicators.

"But the path ahead is certain to be challenging–economic damages from the coronavirus shock will take time to heal, and the global disparity in vaccination efforts means a synchronized global economic uplift is unlikely," Platts Analytics said in a recent note.

Backloaded recovery

Overall, Platts Analytics forecast 2021 global oil demand growth to rebound by 5.9 million b/d this year, compared to the contraction of 9 million b/d in 2020, with the backend loaded in the second half of 2021 as vaccination efforts gain pace.

Road fuel sales, which were hit the hardest in terms of volumes during the worst of the lockdowns, are expected to recover more strongly than jet fuel this year. Gasoline and diesel/gasoil demand is expected to recover by about 3 million b/d and 2 million b/d, respectively, in 2021, according to Platts Analytics, after contacting by a combined 5 million b/d in 2020. With air travel demand expected to be structurally damaged due to the pandemic, Platts Analytics does not expect global jet and kerosene demand to return to 2019 levels of 8.1 million before 2026.

Last month, top oil trader Vitol and JP Morgan said they expected global oil demand to reach pre-COVID-19 levels of around 100 million b/d by the end of the year, driven by a strong rebound for gasoline, diesel and fuel oil.

Platts Analytics expects oil demand to reach 102.6 million b/d by the fourth quarter of this year, the highest since Q4 2019, when it averaged 103.9 million b/d.

The International Energy Agency predicts global oil demand will recover to average 99.2 million b/d by year's end, slightly below the 99.7 million b/d in the final quarter of 2019.