Oil Demand Falls in a Pandemic. Here are Three Scenarios for How Bad it Could Get

No one can say precisely what effects the Covid-19 pandemic will have on global demand for oil and natural gas liquids. But businesses can continue to plan by identifying plausible scenarios based on potential behaviors and outcomes. The benefit of using a scenario-based approach is that it gives executives a wider range of possibilities to consider as they form their operational response and strategic plans.

Bain’s global oil and gas practice considered demand destruction for oil and natural gas liquids beyond the pre-pandemic baseline assumption of just over 100 million barrels a day in 2020. We modeled potential effects on nine key industry sectors in the world’s 20 largest markets, accounting for about 75% of all demand.

• The most optimistic scenario, which would reduce demand by about 9 million bpd for 2020 overall, assumes effective containment of the virus in China, India and the US, with recovery beginning by the end of Q2 in those markets, and taking a bit longer in Europe, closer to the end of 2020.
• A mid-range scenario assumes effective containment in China with longer lockdowns in the US and Europe, seeing demand recovering in those markets by the end of 2020, and emerging markets still struggling into 2021. In this scenario, demand could decline by about 13% against the baseline pre-virus expectations.
• In a scenario where the virus re-emerges in major markets while spreading to emerging ones, with lockdowns continuing globally for longer periods, we could see a 20% decrease in annualized demand against the baseline.

By monitoring key sign posts in the economy – everything from lockdown periods to hospitalization rates, flight miles and rehiring trends – businesses can track the pathway we’re on, adjusting and recalculating scenarios as we go. Doing so can help executives navigate their way through this period of extreme uncertainty.

For a more detailed analysis, watch the recording of our April 3 webinar, “Global Oil and Liquids Demand Scenarios.”

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Peter Parry is a partner and Dave Rennard is a principal with Bain & Company’s Global Oil & Gas practice, which Peter leads. Peter is based in Milan, and Dave in London.