EIA sees Covid-19 fuel cuts lasting 18 months: Update

Updates throughout.

US demand for transportation fuels could take more than 18 months to fully recover from a sharp collapse under efforts to contain the Covid-19 pandemic, the Energy Information Administration said today.

Gasoline and jet fuel consumption that plummeted just ahead of the traditional peak demand seasons would begin creeping higher as early as May, according to the latest Short Term Energy Outlook (STEO) published today. But demand levels through the end of next year would fall below those estimated a month ago, before sweeping local and international restrictions on travel erased roughly a third of expected jet fuel consumption and almost 25pc of estimated gasoline demand for the second quarter.

"EIA expects that the largest impacts will occur in the second quarter of 2020, before gradually dissipating over the course of the next 18 months," the outlook said.

Gasoline demand averages 7.14mn b/d in the second quarter according to the STEO, lower by 24pc compared to the 9.4mn b/d estimate given one month ago, but recovering from a roughly 6mn b/d average demand for April. The US ended March with a record drop in implied gasoline demand and consumption levels at 6.7mn b/d, their lowest since 1994. US consumption of the fuel for 2020 would fall from the previous estimate by 9.2pc to average 8.43mn b/d, and 2021 expected demand would fall by 2.2pc to 9mn b/d.

"In addition to substantially less economic and business activity, stay-at-home orders and rapid increases in working remotely from private residences over the next quarter will dramatically reduce gasoline demand at a time when gasoline consumption typically begins to increase toward its annual peak in the summer," the administration said.

Jet fuel demand also recovered in May and June under the EIA outlook. An average 1.2mn b/d of second quarter demand included a steady recovery from a slump to 810,000 b/d in April. The US consumed roughly 1.6mn b/d of jet fuel in March. Jet consumption would average 1.6mn b/d for 2020 under the outlook, down from a March estimate of 1.8mn b/d.

Diesel demand was more resilient, falling by 4.8pc in the second quarter to 3.8mn b/d. Agricultural consumption for planting and commercial shipping have buoyed demand. But consumption would remain flat in the third quarter at 3.8mn b/d, lower by 5.6pc from previous expectations. Diesel consumption for the full year would average 3.9mn b/d, lower by 3.7pc from the March estimate. EIA estimated that long-haul trucking activity would offset some of the drop in economic and manufacturing activity associated with diesel demand.

Plunging oil drilling activity will weigh on US consumption. Magellan Midstream said in late March it expects a 5pc decline in diesel demand for the second quarter across its US Gulf coast and midcontinent system, but estimated another $20mn-$25mn reduction to its revenue associated with a drop in diesel demand for drilling. The company did not provide a volume estimate for that reduction.

The outlook included petroleum stockpiles rising by 11.4mn b/d during the current quarter. Draws would resume by the end of the year, according to the administration.

"Firmer demand growth as the global economy begins to recover and slower supply growth will contribute to global oil inventory draws beginning in the fourth quarter of 2020," the report said.

By Elliott Blackburn

EIA Refined Products US Demand Outlook mn b/d 1Q 2020 2Q 2020 3Q 2020 4Q 2020 1Q 2021 2Q 2021 Refined Product Gasoline 8.8 7.1 8.8 8.9 8.6 9.1 Distillates 3.9 3.8 3.8 3.9 4.0 4.0 Jet fuel 1.6 1.2 1.8 1.7 1.7 1.8 EIA Short Term Energy Outlook, 7 April, 2020

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