Virus lockdowns reshape future of oil demand

Bloomberg

Richie Merzian is still thinking about oil a lot in his professional capacity, but these days he’s using much less of it.
The Australian energy and climate change researcher used to drive daily to his office and his kids’ daycare, while occasionally flying to international conferences. Now he works from his home in suburban Canberra and makes presentations to large investors online from his living room.
These radical changes in mobility are being repeated globally, a shift that socked oil demand and caused a historic price collapse gutting companies and government balance sheets. What’s less clear, and of great importance to researchers like Merzian as well as oil traders, investors and executives, is which of these extreme shifts in work, travel and commerce may permanently alter consumption.

Long-Term Impact
“I don’t even carry keys around in my pocket anymore, because I don’t ever need to jump in the car,” Merzian said. “We’ve shifted the norm. You can’t push things this far along and expect them to snap back.”
Government efforts to keep people at home and slow the spread of the disease have wiped out more than 30% of global oil demand. Excess crude is filling up storage tanks so fast it drove US futures into negative prices for the first time ever this week.
There’s no consensus on how fast demand will recover. Some analysts, including at consultant Wood Mackenzie Ltd and bank Citigroup Inc, see a rebound as early as next year that will push consumption beyond 2019’s record levels.
Others see a slower pace. Eurasia Group, for instance, expects the recovery to be years away when the impact of the virus is combined with increased spending on clean energy from some leading economies. Even before the current crisis many, including leaders of some of the world’s biggest oil companies, expected demand to peak in the next decade.
One thing is clear: As transport and petrochemicals make up more than half of total oil use, how these new attitudes and behaviors stick will play an important role in shaping the future of the crude market.
“People are adapting to a more local existence and living off more sustainable activities,” said Damien Courvalin, an analyst at Goldman Sachs Group. They’re “consuming less globally-produced fresh food, producing less waste with a more conservative approach to consumption, all of which may have lasting impacts on demand.”
With the world months away from beginning to recover some semblance of normalcy, it’s too early to tell for sure what a post-virus world will look like. Still, these are some of the areas where experts will be watching for signs of long-term impact:

Air Travel
Goldman’s Courvalin estimates that commuting and air travel account for 16 million barrels a day of global oil demand, which “may never return to their prior levels.”
Business travel is likely to be among the hardest hit sectors. Companies will be keen to keep travel budgets lean after learning just how much business can be done successfully over video-conference. For some people,
it will take years before they’re comfortable sitting in a cramped tube with hundreds of strangers. And for jet-setters who can’t wait to travel again, international flight restrictions and quarantines will likely last much longer than local lockdowns.
“People will continue to stay close to home. Countries will not open up again so easily,” said Vincent Elbhar, co-founder and strategic adviser at Zug, Switzerland-based GZC Investment Management, which oversees $200 million. “It’s not just a crisis and then we move on business as usual. This, for me, is a lasting phenomenon.”
When it comes to gasoline, there are two shifts pulling in opposite directions.
On the one hand, public transport is taking a beating thanks to “social distancing” — basically, staying away from other people, especially in crowds. Commuters will instead opt for more isolated forms of transport, including private cars, which will require more fuel to move the same number of people.
The numbers are telling from China, the biggest oil consumer after the US and the first country recovering from lockdowns. About 50 million fewer people are riding inter-city buses now than in mid-January, according to BloombergNEF. Meanwhile, the number of vehicles on the country’s highways has soared to several million more daily than at the same time last year.
“After such an external disruption, what will happen is people will avoid public transportation and have an increased reliance on cars,” said Cuneyt Kazokoglu, a London-based oil analyst for consultancy FGE.
“That will elevate gasoline demand.”
Meanwhile, efforts to break the spread of the virus are forcing the business world to undergo a global work-from-home experiment. Some fraction of companies and people may decide that such arrangements are preferable and will continue on a semi-permanent basis.