The historical drop in global oil demand of 9.7 mb/d y-o-y in 2020, as a result of the COVID-19 pandemic, prompted a shock to the established relationship between oil demand and global economic growth.
While demand for all petroleum products declined sharply in 2020, the transportation sector, and aviation in particular, which amounts to around 50% of total oil demand, was disproportionately affected.
Within the OECD, all three major regions – Americas, Europe and Asia Pacific – showed sharp declines in 2020, although at differing degrees.
In the Americas, oil demand for the petrochemical sector partially offset large losses in gasoline, jet kerosene and diesel, leading to a y-o-y decline of 3.0 mb/d.
In Europe, lockdown measures were the most stringent and longest lasting during 2Q20 and 4Q20, leading to a decline of 1.9 mb/d, y-o-y, for the year. Oil demand in the Asia Pacific was the least affected, declining by only 0.8 mb/d y-o-y. In the non-OECD region, oil demand declines in 2020 were less pronounced.
Following a drop in 1H20, China’s oil demand returned to positive growth in 2H20 – supported by successful containment of the pandemic and a healthy petrochemical sector – to show a y-o-y decline of 0.4 mb/d.
In India and Other Asia, oil demand fell on the back of restricted mobility, particularly during 1H20, but improved thereafter, to decline y-o-y by 0.5 mb/d and 0.9 mb/d, respectively, for the whole of 2020. In 2021, global oil demand is forecast to grow by around 5.8 mb/d, recovering some of the losses seen in 2020.
At the same time, global GDP growth is projected to rebound based on positive developments, particularly in the US, China and India in 4Q20. With regard to oil demand, the negative impact of the containment measures on transportation fuels is expected to carry over, particularly into 1Q21, with a stronger rebound in oil demand growth, especially for industrial fuels, forecast in 2H21.
In the OECD, oil demand is projected to grow by 2.5 mb/d in 2021, led by OECD Americas and driven by a steady partial recovery in the transportation fuels and healthy petrochemical feedstock requirements. Oil demand in OECD Europe is projected to grow by 0.6 mb/d, supported by economic developments.
OECD Asia Pacific oil demand is forecast to increase by 0.2 mb/d on improvements in the transportation and petrochemical sectors.
In the non-OECD, 2021 oil demand growth is forecast at around 3.3 mb/d, led by China. Recovery is also projected in other regions, particularly Other Asia, the Middle East and Latin America.
Light and middle distillates will be key to fuelling the growing petrochemical sector and supporting industrial activities, as well as gasoline for transportation.
Developments in aviation and general travel will be important parameters for 2021 world oil demand. Indeed, the shock to the traditional relationship between GDP and oil demand that occurred in 2020 further clouds the short-term outlook.
It should be noted that oil-intensive sectors, especially travel and transportation, accounted for a disproportionately large drop in overall world oil demand in 2020, compared to the decline in global economic growth, while the slower recovery in these sectors is expected to have a less positive impact on oil demand growth in 2021.
In addition, the ongoing COVID-19 pandemic, challenging unemployment levels, trade constraints, the pace of vaccinations as well as the impact of the announced economic stimulus measures into the real economy will continue to cause a large degree of uncertainty.
Moreover, the ongoing degree of substitution, phasing out of subsidy programmes, the impact of commissioning, delays, and/or closure of downstream projects, as well as programmes for fuel efficiencies, will all require continued close monitoring during the course of the year.
While the global economy is showing signs of a healthy recovery in 2021, oil demand is currently lagging, but is forecast to pick up in the 2H21.
With this, a healthy rebound in oil demand, in combination with the vigilant stance and considerable efforts of the countries participating in the Declaration of Cooperation (DoC), are essential to maintaining stability in the oil market.