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German driving returns to pre-COVID levels but qualms remain over recovery

Highlights

German driving mobility data above January levels

Europe's top five economies still around 25% below

Concern over lingering post-COVID impact on oil demand

London — Driving activity in Germany, Europe's biggest economy, has rebounded to pre-COVID levels as lockdowns ease but remains below year-ago levels and questions still hang over the pace of oil demand recovery.

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German direction routing activity, a proxy for road fuel demand, stood 2% above January 13, 2020 levels on May 26, according to the latest Apple mobility data.

Europe's biggest fuel market began easing lockdown restrictions in mid-April and traffic activity first surpassed pre-pandemic levels on May 20 after hitting a lockdown low of 38% on March 21, the data shows.

But while mobility activity has returned to mid-winter levels, road traffic during weekdays still remains below year-ago levels when seasonal driving activity is higher.

Traffic congestion levels in Germany's capital Berlin this week remained between 15-20% below average year-ago levels at peak times, according to Tom Tom live data.

Although the daily number of new coronavirus infections continues to drop in developed countries, not all European governments have reopened their economies at the same pace. As a result, the recovery in the region's road fuel demand remains depressed.

Refining activity uptick

In Italy, which allowed some shops, restaurants, bars, hairdressers and beauty centers to reopen since May 18, driving activity still remained 30% below pre-COVID levels on May 26, the Apple mobility data shows. Spain stood even lower at 63% of pre-COVID levels.

Average driving activity in Europe's five biggest economies -- Germany, the UK, France, Italy, and Spain -- stood at 77% of January 13 levels based on direction routing requests from May 24-26, according to the data, up from 67% in the same period a week earlier.

Road transport accounts for about half of oil demand in Europe with diesel making up about 65% of transport fuel and gasoline around 30%.

Oil demand in Europe's top five economies is expected to average 7.09 million b/d this year, according to the International Energy Agency, down 1.02 million b/d from 8.11 million b/d in 2019. The five EU countries are expected to see oil demand slump to average 5.79 million b/d in Q2 as a result of the lockdowns, according to the IEA's latest monthly report.

As driving activity recovers and refined product demand picks up, global refining activity is seen having passed the peak of downtime a few weeks ago.

In Europe, refining maintenance and downtime has decreased to 1.59 million b/d for the week ending May 22, according to S&P Global Platts Analytics, a reduction of 380,000 b/d from a record high of 1.97 million b/d in the previous week. Regional outages are expected to decrease further, reducing to 1.14 million b/d for the week ending June 5.

Second wave

But a smooth ramp-up in fuel demand through the rest of 2020 is far from guaranteed amid lingering concerns of persistently low demand from traffic activity due to post-COVID behavior changes and the risk of a new spike in infections.

In the US, gasoline stockpiles starting climbing higher two weeks ago after early declines and driving activity over the Memorial holiday weekend were lower than the seasonal norms.

Market watchers are also concerned that a rapid lifting of lockdowns in heavily populated regions could spark a second wave of coronavirus infections.

"Risks to global oil demand abound as we enter an era of heightened geopolitical risk alongside the possibility of a second wave of COVID-19 infections," Japan's MUFG Bank said in a note. "Absent a cure, significant risks of a sharp reacceleration of new infections as economies begin to reopen could prompt the reimposition of control measures, and with it, hindering the global oil demand recovery."