Few have a better watchtower over oil demand than Joe Gorder, chief executive officer of major U.S. refiner Valero Energy Corp. But this week Gorder didn’t even need his business insight to know that fuel consumption was starting to recover in America. He only needed to look at the streets of San Antonio, the Texas city where he’s based, to see traffic emerging after weeks of lockdown.
“People are starting to get out more,” Gorder said. “I think there probably is a pent-up demand for folks to get out of their houses and get mobile.” From the streets of San Antonio to Barcelona and Beijing, traffic data, sales at fuel stations, and pipeline flows all suggest that the slump in oil demand probably bottomed out around the middle of April, and has now started a modest — and very tentative — recovery. The signs matter beyond the petroleum industry as they provide a glimmer of hope after a torrent of negative economic data.
“I believe we have seen the bottom,” said Marco Dunand, co-founder of Mercuria Energy Group Ltd., one of the world’s top-5 oil trading houses.
But the recovery is extremely slow. Oil traders believe it’s likely to take more than a year, and perhaps much longer before global demand reaches the pre-pandemic levels of roughly 100 million barrels a day. A growing minority even speculate it may never get there again.
The likely shape of the revival has been a hotly contested topic. A V-shape was discarded a while ago. It’s possible it could be U-shaped, with a relatively long period along the bottom, or L-shaped, with demand never returning to where it once was.
Perhaps the Latin alphabet doesn’t have a letter for the right shape. The square-root mathematical symbol may offer, to a point, an alternative: first, a V-recovery as lockdowns are relaxed, followed by a long, flat tail as lifestyle changes, such as more work-from-home, become more normal.