A disagreement between OPEC+ members lead to a price war earlier in the year, but as a stock analyst wrote in a note to their clients, “The biggest threat to oil demand is the rise of remote working.”
It get worse. “A decrease in commuting and business air travel is clearly negative for oil demand.”
According to data from the Royal Bank of Canada, about 45% of a barrel of refined crude oil is used for gasoline. About 28% of gasoline demand in the United States is due to people driving to and from work.
With much of the country either under a modified lockdown or headed that way there has been a substantial decrease in people doing any kind of traveling, which in turn creates a sharp reduction in oil prices because demand is so low.
Even when lockdowns are lifted, oil consumption is unlikely to ever return to what it was pre-lockdown, experts warn. Twitter and Shopify have offered their employees permanent work from home options.
Other big-name companies are expected to follow their lead.
“While it’s probably too early to tell how prevalent this structural shift in working from home will become after the restrictions are lifted, it’s clear that a certain percentage of workers will never go back to commuting, at least every day,” said Dan Klein, head of scenario planning at S&P Global Platts.
Platts estimates between 1 million barrels per day and 1.5 million barrels per day will be permanently lost.
Rebalancing will take time
West Texas Intermediate, the U.S. oil benchmark, dropped below zero and into negative territory for the first time in April.
This was followed by a May in which the West Texas Intermediate saw its best month ever on an easing of lockdown restrictions as oil producers slashed output.
Goldman Sachs is advising clients that a “rebalancing” of prices in the oil sector “will take time.”
“The oil market rebalancing continues to gather speed, driven by both supply and demand improvements … These improvements are taking out the risk of a sharp pull-back in prices, although we reiterate our view that the rebalancing will take time,” wrote Goldman Sachs.
Bernadette Johnson, vice president of market intelligence at Enverus, also sees demand being the most significant factor going forward, saying, “All eyes are on demand … this is mainly a demand problem.”