Emerging markets in India, Brazil and Southeast Asia could support future demand for oil as post Covid-19 recovery is anticipated faster than in other regions, according to Norwegian consultancy Rystad Energy.

While oil demand is unlikely to return to 2019 demand levels until 2022-2023, with the biggest drop in demand seen in Europe and North America, some locked barrels could go to emerging markets.

India effect

One such market is India, where oil demand could reach 2019 consumption levels in early 2021, Rystad said.

“After strong growth signs from aviation and road traffic in May, India enters June by removing additional measures. Indian oil demand fell around 45% in April compared to our pre-virus projections but have been making a strong comeback in May after lockdowns were eased,” the consultancy said.

“After lockdowns were introduced at the end of March, road traffic in Indian cities plummeted, staying at around 60% below normal levels for over a month. In the past few weeks, activity has recovered, with level now standing at 30% to 35% from 2019 traffic levels.

“Recent data shows a rapid increase in the number of domestic flights and we expect a doubling of jet fuel demand in June 2020 compared to May 2020,” it said.

Brazil demand drop

Meanwhile, in Brazil, oil demand is 600,000 barrels of oil per day to 800,000 bpd lower than pre-virus estimates for May and June, Rystad said.

“Despite limited interventions from the government, Brazilians have reduced their activity levels during the Covid-19 pandemic. In April, close to 1 million barrels of oil consumption were wiped away due to Covid-19,” it said.

“The 20% to 40% reduction in road traffic in Brazil was apparent from mid-March to late-March, before the government imposed any measures. After the measures were relaxed in late April and May, traffic has remained around 30% down from 2019 levels.

“Most governments have restricted entry from contagious countries; thus jet fuel demand is expected to be as low as 30,000 bpd until the third quarter of the year,” it added.

Southeast Asia dynamic

In addition, while Southeast Asia demand is seen as recovering slowly, road fuel could recover to 2019 levels by the second half of this year.

“After a disciplined approached to lockdown, Southeast Asia governments are loosening measures across the region. Activity is expected to pick up pace in June and July,” Rystad said.

“Total oil demand in Southeast Asia clocked in around 5.2 million bpd in April, down around 25% from our pre-virus projections. For 2020, oil demand in Southeast Asia is expected to be 700,000 bpd lower than our pre-virus estimates.

“Road traffic in Southeast Asia is currently down 20%to 30% from 2019 levels, with a higher activity level in Thailand and lower activity level in Indonesia, Malaysia and Singapore.

“Despite the loosening of lockdown, there has been little communication about resuming aviation traffic, thus fuel demand destruction is expected to stay as high as 200,000 bpd for 2020,” Rystad said.

Global investments falling

But while some of these markets could support future demand, Rystad’s outlook suggests global exploration and production investments could fall by around 30% this year, leading to millions of barrels of potential oil production disappearing from the market.

Investments in E&P in 2019 surpassed $500 billion. However, this year, companies are expected to spend 29% less, just under $400 billion globally, on E&P activity.

So far, Rystad said, the largest fall has been in the shale and tight oil segments, where investments have been cut by more than 50%, followed by oil sands, which saw a 44% drop.

Investments offshore have been reduced by 14% near shore, and by 16% in deep waters. As capital expenditure is expected to remain at these low levels next year as well, the most drastic impacts this will have is on the financial investment decision.

The consultancy said global project sanction activity in 2020 is expected to slip by around 90% from expected pre-Covid-19 levels.

This year, more than $200 billion worth of final investment decisions were expected, but this has been reduced to less than $50 billion. Next year, $250 billion worth of such decisions were expected, which has now been reduced to less than $100 billion.

Sanctions from 2022 are still below previous expectations but should be back to levels of around $200 billion annual investments, Rystad said.

Low oil prices have reduced 2025 liquid supply by more than 6 million barrels per day, it added.

Production

Emerging markets could support oil demand growth post Covid-19, says Rystad