Top oil traders say demand recovery is at least 18 months away

London: Global oil demand won’t meaningfully recover for at least another 18 months, said the heads of three of the world’s biggest independent trading houses, offering a dim outlook for the sector.

It will take “a couple of years” to get demand back to where it was before the coronavirus pandemic forced governments to impose lockdowns curbing consumption, Torbjorn Tornqvist, the chairman and chief executive of Gunvor Group Ltd., said at the FT Commodities Global Summit, on Tuesday.

Speaking at the same conference, Mercuria Energy Group Chief Executive Marco Dunand said it will take “more than one-and-a-half years for demand to come back” to 2019 levels.

Daily demand is still 4 million to 5 million barrels day below where it was expected to be last year, said Russell Hardy, the chief executive of Vitol Group, the biggest independent oil trader. He doesn’t expect a meaningful pickup in demand until at least the summer of 2021.

Gunvor and Mercuria each handle more than 2 million barrels of oil and petroleum products per day, giving them keen insight on global need for hydrocarbons. Vitol traded more than 8 million barrels a day in 2019 though volumes have dropped significantly this year amid the pandemic.

“Things are fragile. Demand is probably not going to do much until next summer,” Hardy said.

While China’s oil demand is more or less back to pre-pandemic levels, consumption in Europe and the Americas remain weak, Gunvor’s Tornqvist said. “The picture doesn’t look good right now,” he said. “Short-term, the demand question is such that risk is probably to the downside.”

Bearish Signs

Amid the bearish demand outlook OPEC+ are mulling a production increase of 2 million barrels per day from January 2021. Saudi Arabia, Russia and the rest of the Organization of Petroleum Exporting Countries and its allies have made historic output cuts this year in an effort to save a market battered by the pandemic.

Dunand said there is about 12 million barrels a day of spare production capacity, even after a raft of U.S. shale production shut-ins.

Traders aren’t expecting a major price move in the next six months as demand will stay weak. Dunand said Mercuria sees Brent crude at $45 a barrel by mid-2021 while Gunvor’s Tornqvist expects prices in the mid-to-high $40s and perhaps even $50 a barrel.

Vitol’s Hardy said oil prices could be “up a bit,” by mid-next year. “I don’t have great expectations,” he said.