Resurgent pandemic brings new headwinds for the oil market

As Mumbai falls eerily quiet, petrol and diesel demand will plummet

(Image credit: © PUNIT PARANJPE/AFP via Getty Images)

last updated 30 April 2021

India’s pandemic turmoil hits emerging markets

A slowing Indian economy is a new headwind for oil prices. The country is the world’s third-biggest oil market, importing more than $100bn of the fuel in 2019. Before Covid-19, world oil consumption was around 100 million barrels per day (mbpd). That figure tumbled by 8.7mbpd last year, according to data from the International Energy Agency (IEA). The IEA thinks global demand will recover by 5.7mbpd this year, says Robert Perkins of S&P Global. The agency has raised its forecasts because of strong rebounds in China and the US.

Oil prices have enjoyed a strong start to 2021, with Brent crude rising by about 27% so far to trade at $66 a barrel this week. That is thanks in large part to supply curbs agreed by the Opec+ cartel of producers, of which Saudi Arabia and Russia are the key members.

Opec+ has been curbing its output by millions of barrels a day in order to bolster prices. The stronger demand outlook had enabled the group to relax output curbs gradually, says Julian Lee on Bloomberg. The group had been planning to add an extra 2.14mbpd to global markets by July.

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Now India could put a spanner in the works. With the streets of New Delhi and Mumbai falling “eerily quiet” once more, local diesel and petrol consumption looks poised to fall by as much as 20% month-on-month. Japan, the world’s fourth-biggest oil importer, has also declared a state of emergency in the face of rising Covid-19 cases.

Mobility data shows that the recovery in oil demand is “uneven”, say Martijn Rats and Amy Sergeant in a Morgan Stanley note. Strength in the US, the UK and Israel is offset by weakness in Europe, India and Brazil. Nevertheless, the investment bank still thinks that oil demand will pick up over the summer. Brent crude looks likely to trade in the $65-$70 a barrel range until the end of the year.

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.