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Editorial comment

On 19 June, the UK government downgraded its COVID-19 alert level from four to three in what has been seen as a significant moment for the country in its battle against the coronavirus. For those of you unfamiliar with the UK’s alert levels, there are five in total, with level five representing a risk that the country’s healthcare services may be overwhelmed (triggering lockdown) and level one meaning that COVID-19 is no longer present in the UK. At level three, the virus is deemed to be in general circulation (rather than transmission being high or rising exponentially, as in level four), meaning that we can expect a gradual relaxation of restrictions. This relaxation will see social distancing reduced from 2 m to 1 m throughout England, while there will also be a reopening of the hospitality and tourism sector, including pubs, restaurants, hairdressers and hotels, from 4 July.

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Despite this seemingly positive news for the UK, the pandemic is clearly far from over, with Latin America now at the epicentre of the coronavirus. A worrying increase in infections across southern and western parts of the US, and the return of lockdown measures in parts of Beijing, serve as just two reminders that this battle will be a long one.

However, any signs of recovery are certainly to be welcomed. The American Petroleum Institute (API) recently noted that the reopening of state economies drove a notable rebound in US energy markets in the month of May, with US petroleum demand increasing 14% to 16.2 million bpd. Data from the API’s May 2020 ‘Monthly Statistical Report’ and its ‘Q2 2020 Industry Outlook’ showed that gasoline accounted for more than 80% of the demand increase, with monthly deliveries rising nearly 29% to 7.3 million bpd after reaching a multi-decade low in April. Demand for distillate fuel and liquid feedstocks was also up, although jet fuel posted its fifth consecutive monthly decline and reached its lowest level since 1967. API Chief Economist Dean Foreman said: “Market forces are in the midst of driving an unprecedented realignment of oil markets despite significant uncertainty around the rate of recovery and longevity of the pandemic. The uptick in demand associated with the gradual reopening of state economies leads us to be cautiously optimistic that the worst may be behind us.”

Meanwhile, the International Energy Agency’s (IEA) June 2020 ‘Oil Market Report’ suggests that oil demand this year will fall by 8.1 million bpd before recovering by 5.7 million bpd in 2021, although jet and kerosene deliveries are expected to impact total oil demand until at least 2022. The IEA has also raised the forecast for 2020 oil demand by nearly 500 000 bpd to 91.7 million bpd in its latest report, as a result of stronger than expected deliveries during the COVID-19 lockdown. After a 5.4 million bpd decline this year, refining activity is set to gain 5.3 million bpd in 2021, nearly recovering to 2019 levels, according to the report.

The IEA notes that initiatives such as the OPEC+ agreement and the meeting of G20 energy ministers has contributed to restoring market stability, and that if recent trends in production are maintained and demand recovers, the market will be on a more stable footing by the end of the second half of 2020.

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