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The term "unprecedented" has been utilized more than a few times
during the past month. And while usage of this word is often
hyperbolic, it is wholly deserved in the context of COVID-19's
impact on the global oil sector. The extreme lockdown measures
enacted by the world's largest oil product markets, coupled with
voluntary "social distancing" and other secondary effects, have
caused a heretofore unimaginable degree of demand destruction. IHS
Markit is predicting that global March gasoline consumption is down
18% versus the year before and demand next month will decline a
staggering 33% year on year. The impact on jet fuel demand is even
more severe, falling 42% this month and 60% next month (again, year
on year basis). Demand for diesel and residual fuel will hold up
better but are still expected to experience double digit
declines.
Figure 1: Global fuel demand change (2020)
It is not an exaggeration to say that demand declines of this
scale have never occurred before. Nor would any reasonable industry
watcher have expected them to occur for any reason short of the
outbreak of World War III.
And while the impact on oil product consumption is decidedly
global in nature, the demand destruction will be most severe in
Europe and North America. These markets are now the epicenters of
the global pandemic, with COVID-19 cases still rising
exponentially. In response, respective governments have instituted
harsh lockdown measures that have strangled commerce, mobility, and
- by extension - oil product demand. Some of the leading indicators
are truly remarkable. Most airlines are culling their flight
schedule by upwards of 50%, with most European airlines cancelling
better than 90% of their flights. And speaking of Europe, commuter
vehicle traffic in heavily affected cities like Milan, Paris, and
Madrid has fallen as much as 80% after lockdown measures took
effect. Meanwhile, vehicle mileage in the US is "only" expected to
contract by 55%.
Given that this demand shock - and the timing of the eventual
recovery - is entirely dependent on the progression of the COVID-19
pandemic, outlooks beyond the next couple of months are far more
uncertain than usual. For now, IHS Markit's forecasts assume the
outbreak is largely brought to heel by the end of the summer,
though the economic impacts of the pandemic - not to mention
continued voluntary social distancing - will linger for some time,
with a corresponding effect on oil product demand.
Understand changing dynamics in the oil refining and marketing
value chain around the world with IHS Markit energy refining and
marketing outlooks, data and analysis: Learn
more.
Rob Smith is a Director in IHS Markit's Refining and
Marketing group.
