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The Coronavirus pandemic has affected not only the lives of people but the economy as a whole too. Additionally, the crisis has drastically reduced the production and demand of many products, including having an unprecedented impact on the market for oil and petroleum products. The global oil demand is staggeringly low as coronavirus has forced people to remain indoors and avoid all travel. As around two-thirds of the world’s population is in a state of lockdown, and no one is traveling, driving, or flying, there is a reduction in the use of crude or its derivatives. As such, the consequences of the reduced demand in the oil market is enormous, with refineries and oil producers all facing an uncertain future.
According to the Petroleum Status Report from the Energy Information Administration, it is seen that the impact on US gasoline demand has been drastic. In the United States, the demand for gasoline fell to 5.065 million barrels per day (BPD) in the last week. This is a considerable reduction in demand- a 48% decline. The previous recorded low in the Gasoline market was in January 1969, and this year low is the lowest recorded figure, after more than 50 years. Also, oil refineries across the world are preparing to slash processing rates as petrol demand and production affected and traders particularly concerned about the US- the world’s largest petrol market. The drop in petrol demand in the United States will also see an abrupt change from recent weeks, when the fuel consumption was relatively steady despite the growing COVID emergency, with people moving from public transport to private cars. The commercial shutdowns and shelter-in-place orders have emptied highways in the US, particularly in the north-east region, where New York has become a significant hotspot of the COVID outbreak in the US.
Though the demand for other petroleum products is also dropping, it is not declining as drastically as gasoline. The same report also states that the total market for petroleum products this year is recorded at 14.446 million BPD, in comparison to the year back, which stood at 20.316 million BPD. This is a decline of 29%. The low in demand is also affecting the production, as oil production in the United States fell to 12.4 million BPD in comparison to 13.0 million BPD a week earlier. This number is likely to fall further, owing to the current COVID-19 pandemic across the globe, shutting down economies and countries.
The collapse in demand has also brought about a new problem for companies that convert crude oil into fuel. Energy Aspects Company stated that refineries in the US are the hardest hit as they are correctly configured to maximize production of petrol and jet fuel, another market badly hit by the COVID outbreak and shutdown of air travel. Export markets that are targeted by US plants are also shutting down. Recently, Italian refinery API is reportedly looking forward to shutting down its 85,000 b/d refinery in Ancona. Robert Campbell of Energy Aspects stated, ‘You can’t export your way out of this. So they need to produce less. The fundamental problem is the oil products market is not designed to cope with this kind of collapse in demand. The whole industry has been designed around the security of supply, with little built-in redundancy should demand fall.” A person at a US refinery reportedly said that he expects to see more petrol-making units across the United States shut down in the coming weeks, even though refineries try to avoid complete closure. “The difference this time is the big bosses won’t be mad. There won’t be any other choice’, Campbell said.