When the SARS-CoV-2 began to spread in China in February, my team forecasted the probability of the WHO declaring a pandemic. We were concerned about Covid having a much IFR (Infection Fatality Rate), approaching the 1918 IFR of 2-3%, not the 0.42% it currently is. Had the 2% IFR come to pass, we expected the global deaths and fear-of-death to soundly knock down economic output and bring industrial output to it’s knees for some industries. But that fortunately didn’t happen, in fact this pandemic has been something of a training one, preparing world agencies to fight the next big one that will have worse casualties. The casualties have been bad, but not horrendous enough to change the oil industry for a decade.
Oil however, did tank deeply at one point, not because industrial output stopped but because the supply kept coming and the world ran out of storage space for the glut. That sums up where we were, now let us find out where we will be.
Facts as we see it:
- There is a clear demand of travel lust that is pent up. Combined with some pandemic fatigue, we expect a strong travel season this summer.
- The US is on a strong track of vaccinating the majority of its population and jobs and industry will roar back stronger. EIA is forecasting a 6.5% GDP growth this year
- Latin America, Africa, India, and most 3rd world countries will continue to have their economies suppressed by the virus for several more quarters.
- Air travel and cruising is on the rise
- B.117, B.351, B.617 and other mutations are on the rise, if one can significantly breach the US vaccines, we will have new outbreaks and reduced economic growth.
From the EIA, they have bullish news:
“EIA expects global oil inventories to fall by 1.8 million b/d in the first half of 2021. Forecast increases in global oil supply will contribute to a mostly balanced market during the second half of 2021.”
However, this forecast is subject to the production whims of OPEC+. On the home front, US production averaged at 11.1 million b/d and is expected to rise as oil prices show to stay above $55.
In conclusion, there is still heightened uncertainty on some economies from SARS-CoV-2. However, the US is showing a strong economic surge, and OPEC+ is keeping the oil markets balanced for now leading to likely a stabilizing $60-75 oil by the end of the year. By 2022, other economies should have their vaccination programs underway and demand will begin the steady climb yet again for this economic cycle.