Lockdowns had produced what the International Energy Agency called a "black April", with consumption down 29 million barrels per day compared to the previous year.
Oil prices prices were rallying dramatically on Monday, as the prospect of a workable COVID-19 vaccine—and an end to stop-and-start lockdowns worldwide—appeared to spark hope that demand could recover from an unprecedented drop this year.
On early afternoon Monday, Brent was up 8.09% to $42.64/barrel, while the WTI contract was up 9.18% to $40.55/barrel. Refined product markets, including gasoline, heating oil and gasoil were also all up at least 6.6%.
Those surges were tied not to a Biden victory for President of the United States—but to the announcement of the high success rate in trials for the Pfizer and BioNTech COVID-19 vaccine, which was announced before markets opened in the U.S.
Such a surge may be completely premature, but “in the eyes of traders, a vaccine will help ensure no future lockdowns are needed and will bring people back to the streets, allowing road and air transport to recover,” said Bjornar Tonhaugen, head of oil markets at Rystad Energy in Oslo, Norway.
Lockdowns earlier this spring had a profound impact on oil demand, producing what the International Energy Agency called a “black April”, with consumption down 29/million barrels per day compared to the previous year, as traffic slowed to a crawl worldwide and just a fraction of flights continued to fly.
This autumn, as cases haven rising and much of Europe has plunged back into lockdown, even the prospect of a high-stakes presidential election failed to make much of an impact to oil prices as the focus remained squarely on the impact of the pandemic.
Last month, the IEA declared that oil demand will be down an estimated 8.7 million barrels per day this year, compared to 2020.
It’s not just oil that has been hit. All forms of energy, including renewable solar and wind, saw demand fall due to the transformation in how everyday people live their lives, particularly during the first shock in the spring. But oil has been particularly affected, because it is so reliant on demand from vehicle, aviation and shipping traffic for consumption, areas where—electric cars notwithstanding—it faces almost no competition from other energy sources, whether coal or solar.
Of course, the prospect of a renewed demand for oil is still resting on several unknowns, including the full picture of the vaccine’s effectiveness, as even optimistic infectious disease experts have warned. And questions remain for even a successful vaccine on how and when it will be administered—raising the odds that there could be a sharp pullback when the excitement has worn off.
Meanwhile, a Biden administration represents a starkly different future on several fronts. The President-elect has pledged to re-enter the Paris Agreement, and pursue net-zero emissions by 2050. It remains unclear just how much political leverage Biden will have to pursue those policies if the Republican party retains control of the Senate.
Instead, a looming vaccine may represent a medium-term chance to test whether daily habits and consumption have now changed for good. From flexible working arrangements and less air travel, to a hit to incomes from the economic crisis, to a commitment by many businesses to power operations largely from renewable sources, some analysts think several of these shifts could be here to stay. Even oil and gas companies have warned of that possibility. There is a growing consensus that oil demand could plateau, or even begin to decrease permanently, by the 2030s. Under the best of circumstances, 2021 may be the year to find out.
