London — Market pessimism continues to grow over the impact of COVID-19 on global oil demand despite signs that economic measures to contain the pandemic are starting to ease in Europe, the continent hardest-hit by the crisis.
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As forecasters sift through fresh data for signs of how economic activity is responding to the rolling lockdowns, most are now doubling down on their worst-case scenarios for the toll on oil demand.
Pointing to a wave of "abysmal" data suggesting manufacturing activity slumped to record lows in April, London-based consultancy Facts Global Energy now expects global oil demand to fall by 11 million b/d year on year in 2020, compared with a forecast contraction of 7.9 million b/d on April 8.
Citing provisional, or "flash" purchasing managers index (PMI) survey from the world's biggest economies, FGE said its outlook for jet consumption has weakened due to the potential for a slower recovery from lockdown measures worldwide.
Despite some recovery, global oil demand will still fall by 7.7 million b/d in the second half of the year, it predicts.
Norwegian consultants Rystad Energy on Thursday cut its 2020 forecast for oil demand to 89.2 million b/d from 90.3 million b/d a week ago. The current outlook points to demand down 10.3 million b/d or 10.4% on 2019.
S&P Global Platts Analytics this week revised its forecast for oil demand in 2020 to 8.7 million b/d, an almost 1 million b/d downward adjustment from its previous estimate.
EMERGING FROM LOCKDOWNS
Market watchers predict that some 25 million b/d, or 25%, of global oil demand, has been sidelined in April due to the pandemic which also risks damaging underlying oil demand the longer it goes on.
Road fuels, which make up about half of the world's oil demand, have been the hardest hit in terms of volumes from coronavirus lockdown. Gasoline is seen making up about a third of the total oil demand loss globally, and the biggest by volumes, most of which is in the US. Rystad expects North America to lose around 2.2 million b/d of gasoline demand alone over the second quarter of 2020.
But as coronavirus infection rates start to fall, a number of European countries are cautiously easing containment measures and other nations are keen to follow.
Germany, Europe's biggest economy, on Monday allowed some small businesses to reopen. Similar moves to ease restrictions have been announced in Austria, Belgium, Denmark and the Czech Republic under a phased resumption of activity.
Italy, one of the world's hardest-hit countries by the pandemic, is expected to start easing restrictions in the coming weeks. The UK is taking a more cautious line on its curbs but motor traffic levels rose to their highest since the country's lockdown began on Monday, according to official data.
Italian oil major Eni said Friday it has seen domestic fuel consumption improve in April and expects a gradual recovery in oil, gas and power demand over the second half of the year returning to normal levels by year-end.
Most oil demand forecasts are based on the assumption that "stay at home" orders will continue to ease from May but the pace of the recovery, and its ability to surprise to the upside, remains unclear. Potential hiccups for a smooth economic recovery still cloud the forecasts at the pace at which oil demand will bounce back.
The risk of a second wave of infections as social lockdowns lift and the absence of effective economic stimulus spending could both derail the recovery and extend the downturn, according to S&P Global Ratings.
"We expect the drop in economic activity to be sharp but fairly short, the path to recovery remains very uncertain in its timing and trajectory, until an effective treatment or vaccine are in place,"
Indeed, even when demand returns, oil prices will likely remain low for some time as the market works through record high inventories.
Speaking on April 9, Total CEO Patrick Pouyanne said he was optimistic that the oil demand will return in the near term as the lockdowns are lifted and the crisis recedes.
"This demand will come back, I'm optimistic," he said. "I don't know if it will be three months or six months. Nobody knows exactly...."I'm rarely thinking it will be a 'V' [-shaped recovery], it will be longer for the oil industry."
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