Higher vaccination in OECD countries support oil recovery

The EU, US and the UK account for 52% of the total doses administered worldwide

The Total Culzean platform in the North Sea, east of the Aberdeen. Production may decline further this year and next, following a 5 per cent decrease in 2020, according to a new report from think tank Oil and Gas UK. AFPShow less

A more widespread vaccination drive in western economies is likely to provide impetus for higher gasoline and jet fuel demand, amid a wider recovery of oil prices, according to a prominent energy analyst.

More than 173 million people have been vaccinated worldwide, with western countries including those in the EU, US and the UK accounting for 52 per cent of the total doses administered, according to data from Bloomberg, which is tracking the roll out of vaccines globally.

"We get a bigger bang for our buck vaccinating western consumer-driven economies because this is where gasoline and jet fuel numbers are really hamstrung," Amrita Sen, head of research at London-based consultancy Energy Aspects told a virtual briefing organised by Gulf Intelligence.

Gasoline demand will rise as vaccinated populations take to driving to escape months of lockdown and working from home. However, jet fuel, which is largely supported by demand from the aviation sector, is likely to remain low as the industry is not expected to recover to pre-crisis levels before 2024, according to International Air Transport Association.

In states not belonging to the 37 countries that make up the Organisation for Economic Co-operation and Development (OECD), the situation is more "give or take" and relatively back to normal, when it comes to oil demand, Ms Sen added.

In key non-OECD demand centres such as China and India, Covid-19 is largely under control and infection rates are declining, paving the way for a broader recovery.

The global economy is forecast to expand 5.5 per cent this year, following a contraction of 3.5 per cent in 2020, according to the International Monetary Fund.

China, the world's second largest economy, which escaped a contraction last year, is forecast to grow at a rate of 8.1 per cent, with India, whose economy shrank 8 per cent in 2020, set for an 11.5 per cent surge this year.

Ms Sen cautioned that markets are largely pricing in good news over the short-term, but said the recovery in demand has exceeded expectations.

"Demand is coming in stronger than people expected, including ourselves," she said.

Both the International Energy Agency and Organisation of the Petroleum Exporting Countries (Opec) slashed their demand outlook last week, citing slow vaccine rollouts, continued lockdowns and ongoing travel restrictions due to Covid-19 in many parts of the world.

The IEA cut its demand forecast for 2021 by 200,000 barrels per day, while Opec reduced its estimates by 100,000 bpd, expecting consumption to average 96.1m bpd, citing renewed restrictions in OECD countries.

"We've been fairly conservative this year because we know the vaccine [rollouts] will take time," Ms Sen said.

She added that non-OECD demand is "above pre-Covid levels".

Crude benchmarks Brent and West Texas Intermediate are both above $60 per barrel. Brent and WTI have surged 15.5 per cent and 16.6 per cent, respectively over the last month, supported by vaccine rollouts and strong drawback of crude inventories by Opec+.

The group is cutting back 7.2 million barrels per day of oil from the markets, equivalent to 7 per cent of global oil supplies, until March 31. Saudi Arabia, the biggest exporter has volunteered an extraordinary commitment of 1m bpd to deepen the draw further.

Riyadh's commitment is likely to expire by the end of next month, with Opec+ set to bring 2.35m bpd between now and April 2022, Ms Sen said.

The group could face pressures from members to significantly increase its production, she added.

On the supply side, barrels from non-Opec countries will decline due to lack of investment last year.