Continued coronavirus impact on global fuel markets

In its latest report calculating the effect of the coronavirus on the global fuel markets in light of increasingly stringent travel restrictions and quarantine obligations around the world, Rystad Energy now forecasts that global oil demand will see a decrease of 0.6%, or 600,000 b/d, year-on-year. Its estimates show that total oil demand in 2019 was approximately 99.9mn b/d, which is now projected to decline to 99.2mn b/d in 2020.

‘This is a severe downgrade compared to previous estimates and takes into account the quarantine lockdown in Italy, massive cancellations of flights by airlines, the [30-day] travel ban between Europe and the US… and our simulations of the virus’ growth patterns this year,’ says the Norwegian consultancy.

It also forecasts that global demand for road fuels will stay largely flat, in contrast to previous projections of growth. Road fuel demand in 2019 is estimated to have reached 49.7mn b/d. Prior to the coronavirus this demand segment was expected to grow to 50.3mn b/d in 2020, but it now forecast to only about 49.8mn b/d.

Almost all of this reduction will occur due to reduced road traffic in the first half of 2020. In China alone, demand for gasoline and diesel road fuel was down by about 1.5mn b/d in February 2020. Traffic in the country is now gradually returning to more normal levels.

In Europe, a rising number of cities are expected to implement quarantines and travel restrictions, in addition to those already in place in Italy. From this, the consultancy assumes peak impact will be half of what was seen in China in terms of volume of reduced demand. However, it remains to be seen whether quarantines in Europe will last longer than those implemented in China.

In the US, Rystad predicts an impact equal to half of what will be seen in Europe, with a one-month lag. In the rest of Asia, including Japan, South Korea, India, and South East Asia, it assumes the impact will be 20% of the impact seen in China, with a one-month lag. The same level of impact is assumed for the rest of the world, but with a two-month lag.

Among the various fuel sectors, jet fuel is expected to be hit the hardest. Rystad expects global air traffic will fall by approximately 16% this year, versus the levels seen in 2019, which it estimates stood at around 190,000 flights per day (including commercial, cargo and private flights as well as helicopters). To put the reduction into context, its pre-coronavirus estimate was for an average of 200,000 flights per day this year.

US President Donald Trump recently announced a 30-day ban on air travel between Europe and the US, which will further impact an aviation industry that has already been suffering as the virus has spread. Many distressed airlines will now face heavy cost cuts, and many non-profitable routes are likely to be closed.

As a base case, Rystad now sees jet fuel demand falling by 11% year-on-year, equating to 780,000 b/d. Last year’s demand for jet fuel was about 7.2mn b/d.