COVID-19: what have the oil markets missed?

This 15-page note outlines our top three conclusions about COVID-19, which the oil markets may have missed. First, global oil demand likely declines by -11.5Mbpd YoY in 2Q20 due to COVID-19. This is over 15x worse than the global financial crisis of 2008-9, and too large for any coordinated production cuts to offset. Second, once the worst of the crisis is over, new driving behaviours could actually increase gasoline demand, causing a very sharp oil recovery. Finally, over the longer-term, structural changes will take hold, transforming the way consumers commute, shop and travel, but overall, these net impacts balance each other out and may not alter long-run oil demand.


Pages 2-7 outline our new models of global oil demand and US gasoline demand, underpinning a scenario where oil demand likely falls -11.5Mbpd in 2Q20, and -6.5Mbpd YoY in 2020. In a more extreme downside case, declines of -20Mbpd in 2Q20 and 10Mbpd in FY20 are possible.

Pages 8-10 illustrate how gasoline demand could actually increase in the aftermath of the COVID crisis, once businesses re-open and travel resumes. The largest cause is a c25% potential degradation in developed world fuel economy per passenger, as lingering fears over COVID lower the use of mass transit and vehicle load factors.

Pages 11-15 outline our top three structural trends post-COVID, which will persist for years, transforming retail, commuting, leisure travel and the airline/auto industries.

Please don’t hesitate to contact us, if you have any questions or comments…

De-Carbonising Cars. Can Oxy-Combustion Save Gasoline?

We are positive on the opportunity to de-carbonise gas-fired power generation using next-generation combustion technologies, such as oxy-combustion, which is reviewed in our deep-dive note, ‘Decarbonising Carbon‘. Could the same technology be used in automobiles? It is more difficult. But the world’s largest oil company is nevertheless trying.

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We conclude there is strong potential to de-carbonise gas-fired power generation with next-generation combustion technologies. But de-carbonising oil-fired automobiles may be most readily accomplished by electrification, i.e., substituting in smaller, more-specialised electric alternatives.

Source: Hamad, E. Z. & Al-Sadat, W. I. (2013). Apparatus and Method for Oxy-Combustion of Fuels in Internal Combustion Engines. Saudi Aramco Patent WO2013142469A1.

Source 2: Ben-Mansour, H., Habib, M., Jamal, A. (2017). Gas-Assisted Liquid Fuel Oxygen Reactor. Saudi Aramco Patent US2017284661