Oil Stays Near The $41 Level As Another Attempt To Gain Upside Momentum Failed

Oil Video 28.07.20.

Full Airline Demand Recovery Postponed By 1 Year

The International Air Transport Association (IATA) has just released its new global passenger forecast which includes some grim projections.

According to IATA, global passenger traffic will not return to pre-coronavirus levels until 2024. The previous forecast implied that global passenger traffic will manage to get to pre-COVID levels by 2023.

IATA stated that there were three key reasons for the change in forecast. First, the U.S. and some major developing economies failed to contain the virus.

Second, video conferencing and general cost cuts put pressure on business travel.

Third, consumer confidence is still low as people worry about losing their jobs and are also anxious about catching COVID-19.

The airline industry is living in a nightmare. In June, domestic traffic declined by 67.6% year-over-year compared to a decline of 78.4% in May.

Things are much worse on the international traffic front (which is very important for oil demand) which is down by 96.8% year-over-year.

Oil demand will not be able to get to pre-coronavirus levels without normalization of jet fuel demand. As the world struggles to contain the virus and some countries reimpose virus containment measures, perspectives for jet fuel demand growth look weak in the near term.

Is Permanent Demand Destruction A Real Threat To The Oil Market?

The above-mentioned IATA forecast mentioned the increased use of video conferences as one of the reasons for weaker business travel.

At this point, it looks like the rise of Zoom and similar software has dealt a permanent blow to business travel since companies found that many meetings could be effectively conducted online.

Another worrisome development for the oil market is the increased use of remote work.  Google has recently decided to allow its employees to work from home until the next summer, and many other companies will follow.

Some of these jobs will be done remotely forever after since such work allows firms to cut costs while saving time and providing flexibility to workers.

However, it remains to be seen how much actual damage will be done by the change in people behavior and whether it will be compensated by economic recovery, especially in developing countries which have plenty of room to increase car ownership and mobility in general.

In the near term, the market will likely stay focused on crude inventory levels which will show whether oil demand continues to improve.

For a look at all of today’s economic events, check out our economic calendar.