Uneven demand rebound

Benchmarks drop on COVID surge in India and Japan, but remain in $60s

Steve Sutherlin

Petroleum News

Alaska North Slope crude slid $1.34 to close at $64.55 per barrel April 21, West Texas Intermediate dropped $1.09 to close at $61.35, and Brent lost $1.25 to close at $65.32.

Oil traders caught the demand fear jitters as a new wave of COVID-19 infections continued to flare up in India and Japan.

The Japanese government is expected to declare a state of emergency within days for Tokyo, Osaka prefecture, Hyogo prefecture and Kyoto prefecture, according to an April 21 Reuters report.

If the expected emergency measures are adopted, a quarter of Japan’s population of 126 million would be affected. Quasi-emergency measures are already in place in 10 of Japan’s 47 prefectures, including Tokyo and Osaka.

India reported 295,041 new coronavirus infections April 21, with hospitalizations straining its health system.

While the country has administered 130 million doses of vaccine, behind only the United States and China, the shots have reached just a fraction of its population of 1.35 billion.

Various Indian states and cities, including the capital New Delhi and the largest city Mumbai have imposed curfews and lockdowns.

But there are positive signs emerging in other parts of the world, Bloomberg reported April 20.

Morning rush hour congestion in cities including Beijing exceeded 2019 levels in the second week of April, according to TomTom International BV. In the United Kingdom, road use reached 99% of pre-pandemic levels on April 18, according to government data.

April 21 was the second day in a row to register falling prices.

ANS fell 73 cents April 20 to close at $65.89, while WTI fell 94 cents to close at $62.44 and Brent fell 48 cents to close at $66.57.

The price action on April 20, however, was thought to be largely influenced by supply factors.

In early trading, prices rose due to a potential supply interruption from Libya, but the markets reversed lower on a report from the American Petroleum Institute of a 436,000-barrel build in crude oil inventories of for the week ending April 16. Analysts had expected a draw of 2.860 million barrels for the week.

The swoon stood in contrast to price action of the previous week, as prices staged a strong recovery April 14 on falling U.S. inventories.

Bloomberg reported April 17 that the unprecedented oil inventory glut that amassed during the coronavirus pandemic was almost gone.

Just a fifth of the surplus that surged into storage in developed economies when oil demand crashed last year remained as of February, according to the International Energy Agency, and the flotilla of tankers laden with stored oil was diminishing.

Notwithstanding the losses on April 20 and 21, oil remains in the low to mid $60s trading channel it regained on April 14.

Road fuel drives demand

Rystad’s latest forecast calls for a 6% year-on-year increase in global oil demand in 2021, reaching an average of 95.4 million barrels per day from 89.6 million bpd in 2020, and rising to 99.4 million bpd in 2022.

April demand is expected to settle at 93.0 million bpd, climbing to 94.0 million bpd in May and 95.8 million bpd in June, Rystad said.

Total global demand for road fuels is expected to rise by 9% in 2021, to 45.1 million bpd, from 41.3 million bpd in 2020, rising further to 47.5 million bpd in 2022.

Road fuel demand is expected to average 44.2 million bpd globally in April, rising to 44.9 million bpd in May and 45.9 million bpd in June.

Jet fuel continues to be the laggard in fuel demand recovery.

“Among the various fuel sectors, jet fuel has been hit the hardest by the pandemic,” Rystad said.

The consultancy expects jet fuel demand to average 3.9 million bpd in 2021, up 21% from 3.2 million bpd in 2020, “but still a far cry from pre-pandemic levels.”

Jet fuel demand in April is expected to be 3.4 million bpd, 3.6 million bpd in May, 3.9 million bpd in June, 4.3 million bpd in the third quarter and 4.6 million bpd in the fourth quarter.

In 2022, Rystad expects jet fuel demand to average 5.4 million bpd as air traffic returns to more normal levels.

United Airlines CEO Scott Kirby mirrored the optimism for air travel recovery in 2022.

Demand for business and long-haul international flights is off 80% from pre-pandemic levels, Kirby said during a call with analysts.

United doesn’t expect business travel to bounce back significantly until 2022 but Kirby said he expected the business travel market to improve in the latter part of 2021.

“If you go to downtown Chicago, the streets are empty,” said Andrew Nocella, United’s chief commercial officer. “You have to have people back in office buildings, which I think probably starts in the fall; that begins business travel.”

But Nocella said leisure travel is taking off, with countries that allow tourists to enter with proof of vaccination rapidly experiencing a return to 2019 visitor levels.