Surge in Covid-19 cases means 'quick recovery this year is not on the table anymore'

Surge in Covid-19 cases means 'quick recovery this year is not on the table anymore'

Driving in major US cities with rising infection rates dropped in July, including in Los Angeles, Phoenix, and Miami, according to Dutch location technology company TomTom. Picture: Rui Vieira/PA Wire

Surges in coronavirus infections are slowing a recovery in fuel use from the doldrums of lockdowns in the US and other countries, raising concern it could be years before consumption rebounds from the impact of the pandemic.

Global fuel demand fell by around a quarter at the peak of the lockdowns, when over 4 billion people worldwide were asked to stay at home. 

The unprecedented decline in demand forced producers to make record output cuts and pump hundreds of millions of barrels of oil into storage.

Fuel consumption and oil prices had recovered some ground as governments relaxed restrictions on population movements and the output cuts stemmed the glut.

That recovery is stalling, however, as infections swing upward in top fuel consumer the US, as well as in other major economies such as Brazil and India.

In the week ended July 11, US retail petrol demand fell 5% from the previous week, according to GasBuddy, which tracks real-time retail gasoline purchases, after several states reimposed restrictions to control outbreaks of Covid-19. 

Demand also fell the week before, the first time since lockdowns began in March that it dropped for two straight weeks.

“Normally this two-week period would have been the peak demand period and we didn’t get it,” said John Kilduff, partner at Again Capital in New York. 

The recovery has been unwinding. 

The surge in US virus cases is happening in some of the most populous states including California, Texas, and Florida, which account for more than one-quarter of U.S. gasoline consumption.

US petrol demand pre-pandemic was around 9 million barrels per day, or around 9% of global oil supply, according to US government data.

Driving in major US cities with rising infection rates dropped in July, including in Los Angeles, Phoenix, and Miami, according to Dutch location technology company TomTom.

Traffic in Houston, Texas, had recovered in early June, but it has now dropped to where it was at the depth of the lockdown in April, TomTom showed.

The US Northeast, another major fuel-consuming region that took the brunt of the infections in the spring, is coming out of stringent lockdowns cautiously, which is expected to temper gasoline demand.

Petrol demand rose nearly 3 million daily barrels worldwide in June compared with May, the largest month-on-month increase on record, according to the International Energy Agency.

But markets are concerned that some countries could be hit with a US-style surge in cases in later waves of the pandemic.

The Organisation of the Petroleum Exporting Countries said a second wave of cases could cause demand to fall by 11 million bpd this year, according to internal OPEC research. 

The current expectation was for a year-over-year drop of 9 million daily barrels. 

OPEC already cut supply by an historic 9.7 million barrels to try to bring output in line with lower demand and support prices.

“If the second wave materialises, global oil demand will recover much more slowly in 2021, dragging the pandemic’s market effect further in time,” Rystad Energy analysts said.

On Friday, crude oil prices slipped amid growing uncertainty about the recovery in fuel demand as coronavirus cases surged in several countries, while major crude producers prepared to lift output. Brent crude futures fell 32 cents to $43.05 a barrel. 

The US reported at least 75,000 new Covid-19 cases on Thursday, a daily record. Spain and Australia reported their steepest daily jumps in more than two months, while cases continued to soar in India and Brazil.

“At this stage it looks like a quick demand recovery this year is not really on the table anymore, and with it a quick price recovery,” said Rystad oil markets analyst Louise Dickson. 

-Reuters

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