The link between vaccination rates and the recovery in oil demand
Global oil demand has a distinct seasonal pattern over the course of a year. The low point occurs in the first trimester, which is then followed by smaller but successively higher levels in the second and third quarters. The annual peak in oil consumption occurs in the last quarter of the year. Over nearly four decades, there are very few exceptions to this pattern, and 2021 shouldn’t be one of those exceptions.
The other consideration that must be taken into account in the current year is the end of the isolation and containment measures that have been instituted to limit the impacts of the pandemic. A review of vaccination rates shows that there is a correlated impact with the recovery we have seen in oil demand so far.
When it comes to oil use, the hardest hit countries in 2020 were those in the Organization for Economic Co-operation and Development. So far this year, the biggest rebounds in demand have been in these same OECD countries, which makes sense given the data showing that the vaccination pattern (as a percentage of the total population) is the most important in developed countries.
As noted above, the last few weeks have seen a slight increase in oil inventories against the season in the OECD North America region (Canada, Mexico, Chile and the United States) and in the OECD Pacific region (Japan, Korea, Australia and New Zealand). . These two regions account for 67 percent of world oil storage and the change in collective stocks shows an almost perfect correlation with the total oil stocks of the OECD (the indicator of world storage).
Barring something that actually disrupts the global economic recovery, we have every reason to expect global oil demand to continue to normalize.
Since July 2020, global oil stocks have fallen to a record 440 million barrels. This is the trend that we foresee and the trend that we still see in place. In that regard, you may recall that we saw a modest inventory build up earlier this year in April and May. These storage gains coincided with a slight slowdown in global demand. As with such patterns, however, readings below the trend in one period are usually followed by numbers above the trend in a later period – which has turned out to be the case to such an extent that the second quarter of the year saw global oil demand exceed forecast.
Since two weeks isn’t a month (and a month isn’t a quarter), we have no anxiety that recent weekly data suggests that the global economic recovery (not oil demand) has derailed. Near real-time data (such as air traffic) has been close to respective 2019 levels, and even the most recent weekly figures show no sort of abrupt slowdown.
Barring something that actually disrupts the global economic recovery, we have every reason to expect global demand for oil to continue to normalize. Given the supply side of the equation and the prospect that non-OPEC oil production lags behind demand gains, the odds are strongly in favor of continued tightening of the supply / demand balance and further increases in oil prices in the medium term.
• Michael Rothman is the president and founder of Cornerstone Analytics, a US-based consulting firm that focuses on macro-energy research. He has nearly 40 years of experience covering global energy markets and has participated in OPEC meetings since 1986. He is also the author of “Cornerstones of Life” which is available on Amazon.com
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