By Joe Wallace
Predicting oil demand has rarely been more challenging,
buffeting prices and muddying the outlook for traders, investors
and energy producers.
Energy analysts are mapping out the course of the coronavirus
and efforts to stop the pandemic, including limits on flights,
cruises and the use of public transportation. They are also
grappling with the effects on fuel demand of an economic downturn,
rising unemployment, and changing patterns of work, study and
travel.
All this has introduced an unusual degree of uncertainty into
estimates for how much oil the world will consume in the remainder
of 2020. The lack of visibility has contributed to renewed
turbulence in the market after prices rose over the summer, buoyed
by the return of cars and trucks to the road.
Brent-crude futures, the international energy benchmark, ticked
up 0.6% to $41.70 a barrel Tuesday. This year, Brent has moved
between a closing high of $68.91 in early January and a low of
$19.33 in April. Only twice since 1990 has the price range been
wider. The last time that the market saw such volatility was during
the crash of 2014.
"The oil market, in terms of being able to predict what will
happen next, is in a very unique situation," Marco Dunand, chief
executive of commodities trading company Mercuria Energy Group,
said. "This has never happened in history, where people couldn't
predict with such a magnitude where the demand could be in
three-to-four months' time."
Global oil demand has bounced back from its nadir in April, when
the U.S. and other regions locked down to stall the coronavirus.
Still, it remains significantly below 2019's record level.
High-frequency data have enabled analysts to track oil demand in
real time during this year's crisis, said Gregory Shearer, a
commodities strategist at JPMorgan Chase. The data include requests
for driving directions on Alphabet Inc.'s Google Maps app,
estimates of traffic congestion by TomTom NV's navigational tool,
and daily gauges of flight activity.
The near future has become harder to predict, however. Forecasts
by the International Energy Agency and the Organization of the
Petroleum Exporting Countries have varied widely this year. Their
monthly forecasts of demand in the next calendar quarter have
differed by 1.3 million barrels a day on average, according to
calculations by The Wall Street Journal. That is double the average
gap in 2019.
The IEA forecasts demand by estimating current levels of
consumption and extrapolating into the future based on the
projected speed of economic growth, according to Keisuke Sadamori,
its director of energy markets and security. Before the pandemic,
the model assumed that demand for jet fuel would keep growing,
while gasoline sales could face pressure from improving auto
efficiency.
"Covid-19 broke down all those common understandings," Mr.
Sadamori said. "This is an unprecedented situation, so it's very
hard to predict what might happen in the coming years."
The IEA has adjusted its forecasting model in response,
introducing data from Google and TomTom to capture shifts in
transportation. The uncertainty has prompted companies to slash
their investments in oil-and-gas projects, potentially paving the
way for higher prices down the line, Mr. Sadamori added.
"There are so many uncertainties around the pandemic itself,"
said Regina Mayor, global and U.S. head of energy and natural
resources at KPMG. "Even without added lockdowns, spikes in virus
numbers increase and people grow fearful and limit their movement
again."
China's outsize role in the oil market is another factor
clouding the outlook. Imports by the world's second-largest economy
have slowed after a buying spree fueled by the plunge in prices
this spring.
Tankers departing for China and Myanmar have carried 7.7 million
barrels of crude and condensate daily this month, according to
cargo-tracking firm Kpler, down from the all-time high of 14.1
million barrels a day in May.
The slowdown in Chinese buying is one reason why Mr. Dunand
thinks analysts are overestimating demand for the final stretch of
2020. Crude prices grow more expensive the further out oil is due
to be delivered, he said, a sign the market is glutted since this
encourages traders to place it in storage.
"We can see at the moment that a fair amount of crude oil is
going into storage, whether it's storage on ships or whether it's
storage on land," Mr. Dunand said.
Beyond 2020, oil consumption is even harder to gauge because of
the transition away from fossil fuels and the pandemic-triggered
economic downturn. Past recessions suggest elevated levels of
unemployment will hamper oil sales for several years by reducing
the number of miles driven.
It took seven years for U.S. gasoline demand to recover after
the 2008-9 financial crisis, Ben Luckock, co-head of oil trading at
Trafigura Group, said at an industry event in September.
Write to Joe Wallace at Joe.Wallace@wsj.com
(END) Dow Jones Newswires
September 22, 2020 05:55 ET (09:55 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.