The oil market and the surprising demand for oil

The economic downturn caused by COVID-19 and subsequent global shutdowns, including limited mobility, have led to a historic collapse in oil demand in 2020. Demand for transportation fuels has been hit the hardest by this unprecedented situation. According to various petroleum market sources, transportation fuel accounts for nearly 52% of total petroleum fuel demand.

However, as economies opened up and people returned to conventional lifestyles, demand for oil quickly recovered; much faster than most analysts predicted. This recovery was mainly driven by proactive pandemic management, high levels of household savings during the pandemic, coupled with a steady rebound in economic activities driven by massive stimulus programs in major oil consuming countries.

For example, the US Department of Commerce reported a 6.9% increase in gross domestic product in the last three months of 2021, leading to annualized growth of 5.7% in 2021, the highest growth rate achieved. since 1984. This follows a 3.4% decline in 2020, which was the largest decline in more than 70 years.

In fact, oil demand has recovered faster than expected and is expected to easily reach and exceed pre-pandemic levels in 2022. OPEC’s latest monthly oil market report indicates that oil demand will reach and will surpass pre-pandemic levels this year. Demand is expected to reach 100.2 million barrels per day on an annualized basis, compared to 100.1 million bpd in 2019. The two main energy agencies, the IEA and the EIA, echoed the same sentiment. regarding oil demand in 2022.

However, some challenges could dampen the recovery in demand in the short to medium term. For example, the increasing number of COVID-19 cases around the world due to the emergence of the omicron variant, inflationary pressure which in turn leads to high retail prices, and international pressure to adapt alternative fuels to reduce carbon emissions are all factors that need to be watched closely for their potential impacts on oil demand.
Source: Arab News

Steve R. Hansen