Oil demand has fallen precipitously in recent months due to lockdowns and other measures that governments around the world have undertaken in response to the COVID-19 pandemic. The International Energy Agency reckons that oil demand will fall by a record 9.3 million barrels per day in 2020, erasing nearly a decade of growth. With the crisis having rattled oil markets that were already struggling to adapt to structural challenges on both the demand and supply side, the world should brace for the geopolitical impacts of historically low demand for oil.
It will take years before demand returns to pre-coronavirus levels of roughly 100 million barrels a day—if it ever does. The CEOs of Europe’s two largest oil companies, Royal Dutch Shell’s Ben van Beurden and BP’s Bernard Looney, have suggested that oil demand might never fully recover. While many countries would gladly return to their pre-pandemic ways of life just as quickly as they can, three factors cast doubt over the prospect of oil’s recovery.
First, as long as there’s no vaccine or effective treatment, humanity will have to learn to live with COVID-19. Even as containment measures are being loosened in several countries, governments reserve the right to tighten lockdowns again if they see new spikes in coronavirus cases, as Singapore and Japan recently did. Even if these new restrictions come in the form of “lockdown lite,” which allows for occasional outings and for non-essential businesses to continue operating under certain conditions, they will still hit oil demand. And low oil prices will do little to boost demand in such circumstances.