For those who have been transfixed on oil demand forecasts over the last eight months, the recent news that Pfizer’s Covid-19 vaccine is 92% successful likely came with a renewed hope that oil demand will finally tick up and bring the industry out of the doldrums in which it has been languishing since the start of the pandemic.
The lockdowns are to blame for the loss in oil demand. And now, invigorated with the possibility that this new vaccine will allow people to resume their normal way of life – air travel, dining out, and shopping – the price of crude oil is rising.
They are expecting oil demand to recover – and fast – and not even the news of a slew of additional lockdowns that go into effect this week is dampening the bullish oil spirit.
Hold Onto Your Bulls
The reality is, however, Pfizer’s vaccine – which hasn’t yet received FDA approval – won’t be available to the masses for months. Oil bulls may want to strap that truth on.
And while it certainly looks promising, the vaccine needs to undergo a rather rigorous approval process, and it is by no means a sure thing. If it were a sure thing, they’d skip the approval process and move forward.
What to Expect
That’s not to say that things aren’t looking promising in the longer term. But we are most definitely talking about the longer term.
In the short term, we have a new round of lockdowns sweeping the globe that includes Sweden, New Jersey, and New York – all of which have varying degrees of restrictions on activities. Most of those restrictions involve eating out and going to bars. Some include more restrictions on private gatherings.
These most recent restrictions on our way of life are just the latest. Last week, Austria, France, Germany, the UK, and Portugal all began implementing a wide variety of restrictions that will no doubt compound the oil demand problem.
And while a vaccine is looking likely, things may not move as quickly as some are expecting. Below is a rough timetable of how the vaccine is expected to progress.
With efficacy now established, Pfizer must next establish safety, which comes after two months of tracking. This is to establish the likelihood of side effects. That two-month marker will come on November 16.
2) Emergency Use
Next, Pfizer must apply for emergency use authorization from the FDA. This allows Pfizer to skip over some of its study that is required for traditional approval. This isn’t typically a fast process. The FDA will deliberate in a public meeting to determine if the emergency use will be granted. It is very likely that this emergency use will only be granted for high-risk individuals such as those with co-morbidities and perhaps healthcare workers. There is no estimate, really, on how long this will take. The FDA has merely said that it plans to be quick.
3) Emergency Use Rollout
The good news is, Pfizer has already started to manufacture its Covid-19 vaccine, banking on an approval. This saves a lot of time. However, there are still limited quantities available during this stage, and the emergency use authorization does not cover everyone. Therefore, the initial rollout of the vaccine will be to a small number of people, who will then be tracked to ensure there are no other side effects that emerge.
4) The First 25 Million People
Pfizer has stated that by the end of the year, it will have 50 million doses available. It will likely start trickling in at the end of November or the beginning of December. That 50-million figure is good for 25 million people because each person must receive two doses. Whether this 25 million is used up in the emergency use portion of the process or whether some of it is left over for the full rollout is unknown. But either way, at most, 25 million people—worldwide—will receive the vaccine in 2020. At less than 0.3% of the world’s population, this isn’t going to make even the smallest dent in activity levels and hence, oil demand.
5) The next 1.3 billion doses
That brings us to 2021 when Pfizer expects to have 1.3 billion doses available, which means that 650 million additional people will be able to get vaccinated next year. Of course, this does not factor in other vaccine manufacturers such as Moderna, which announced on Wednesday that it was ready to begin analyzing interim data it amassed during its study, although we’re talking about just 53 cases. Other countries, too, may produce a viable vaccine. The U.S., the UK, Canada, Japan, and other European countries have already put their order in for millions of doses from Pfizer. In fact, just this week, it was revealed that the EU made a deal to purchase 300 million doses—for less than the U.S. will pay. This also means that those 650 million people will be spread across the globe—and across 2021—negating the possibility that any single location would be able to return to normal.
Many people likely heard Dr. Fauci say that the rest of the world may have the vaccine in April. But he’s referring to when the vaccine would start to be available to everybody, not that everyone would have it available. In fact, Dr. Fauci has said that it might take well into the second or third quarter of 2021 to even convince people to take it.
In other words, everyone should buckle up because oil demand isn’t going to snap back in January or even in Q1.
When Will Oil Demand Perk Up?
If you’re listening to Reuters market analyst John Kemp, we won’t see oil demand pick up for another six or even twelve months.
“Coronavirus vaccines are expected to boost international passenger transportation and oil consumption, but the first significant impact will not be felt until well into the second half of 2021, based on futures price movements on Monday,” Kemp said in a commentary on Monday.
This view is likely shared by OPEC, which released its MOMR on Wednesday. In it, OPEC forecast that oil demand will fall this year 300,000 bpd more than it thought last month. OPEC also said that this weak demand would continue into next year. Cutting next year’s demand outlook as well, OPEC now sees 2021 oil demand 300,000 bpd lower than it thought last month. This means it sees 2021 oil demand at just 6.2 million bpd over 2020 levels, and still under 2019 levels.
Why So Glum?
“These downward revisions mainly take into account downward adjustments to the economic outlook in OECD economies due to COVID-19 containment measures, with the accompanying adverse impacts on transportation and industrial fuel demand through mid-2021,” OPEC said in its MOMR, adding that the oil demand recovery “will be severely hampered and sluggishness in transportation and industrial fuel demand is now assumed to last until mid-2021.”
Regarding a Covid-19 vaccine, OPEC had few words.
“Further support, currently unaccounted for, may come from an effective and widely distributable vaccine as soon as 1H21. However, further downside risks to the current growth outlook may stem from ongoing challenges due to Brexit, rising geopolitical challenges in selective regions, unexpected repercussions from quickly rising global debt levels, and mounting social unrest in some countries as a consequence of COVID-19 and rising inequality.”
In other words, OPEC at least believes that the vaccine may help to boost oil demand at some point in 2021, but there are a whole host of other challenges that may dent the economy – and therefore oil demand – next year.
What Say the IEA?
The IEA on Thursday released its own vaccine-oil-demand bombshell, saying that oil demand is unlikely to see any substantial increase from a new vaccine – even one that starts to be distributed in a limited capacity at the end of this month – until well into 2021.
“It is far too early to know how and when vaccines will allow normal life to resume. For now, our forecasts do not anticipate a significant impact in the first half of 2021,” the IEA said, adding that “The poor outlook for demand and rising production in some countries … suggest that the current fundamentals are too weak to offer firm support to prices.”
And while the market largely ignored OPEC’s pessimistic view of the vaccine’s effect on oil demand, the IEA’s prognostication did not go unnoticed; in the early morning hours on Thursday, oil prices started to sink.