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BofA - Global Energy Weekly: Oil's EMerging Divergence

 

EMs are poised to lag the DM oil demand surge 


Even as Covid-19 cases hit record levels this week, oil prices have moved higher on growing vaccination numbers in Developed Markets. Recent data points to the high effectiveness of vaccines at preventing infections and fatalities. So both U.S. and European governments are pushing ahead with big reopening plans. Linked to this immunization push, driving mobility and service PMI (purchasing managers' index) trends between developed and emerging markets have visibly started to diverge, ringing alarm bells across the oil market. Emerging economies come in all shapes and sizes. After a strong rebound in 2H20, manufacturing PMIs have started to roll down in Brazil and India, where Covid-19 is once again slowing economic activity. 


A robust Chinese recovery stands alone among EMs 


Still, some metrics are helping support oil prices. For starters, EM crude oil inventories outside China have normalized and are now sitting 1.2mn below average 2019 levels. And China is notorious for precautionary oil stocking, suggesting that barrels amassed during 2020 will not come out of storage any time soon. With domestic demand for fuels benefitting from increased car sales, a recovery in local travel, and a strong industrial backdrop, Chinese crude imports averaged 11.7mn b/d in February and March, a seasonal record. True, India is unfortunately in a very different position. Mobility trends are pointing to a major deceleration in economic activity ahead as the country is immersed in a dramatic second wave. And so is Brazil.


EM vaccine delays could slow the oil demand recovery


When will EM oil demand fully recover then? It depends. China, the world's largest oil importer, has seen oil demand roaring back. India is poised for a major oil demand slowdown over the next 3 months, even if the recent vaccine export ban accelerates the path to herd immunity. Brazil is probably still months away from getting back into solid economic footing. And immunizations across a broad range of emerging economies will likely lag the US and Europe by at least a year. What's the silver lining? The seasonal step level demand change in 3Q this year will be compounded by the reopening of the US and Europe. Plus increased car sales and reduced use of public transport could extend the cyclical oil demand recovery. Brent still has upside beyond $70/bbl heading into the July 4th summer driving peak, although a US-Iran deal remains a downside risk.

 


Posted by : DubaiPRNetwork.com Editorial Team
Viewed 11287 times
PR Category : Energy and Industry
Posted on : Tuesday, May 4, 2021  2:33:00 PM UAE local time (GMT+4)
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