Enough of the calamity, already. What will the recovery look like and when can we expect it?

“If you look at what’s going to get us out of this recession, what’s going to drive U.S. oil demand back up, it’s getting people back to commuting,” said Michael Maher, senior program adviser for the Center for Energy Studies at Rice University’s Baker Institute, during a recent webinar.

Simple enough. Just hop in the car and head to work, right?

“The challenge there is the high level of unemployment, which means miles driven is probably not going to return for a while,” Maher said. Unlike the 1980s, when demand for oil dropped in large part because of the adoption of CAFÉ standards mandating more fuel-efficient passenger vehicles, this falloff in demand is related to economic activity.

But it is not the economic fundamentals that are askew in this recession, said Anna Mikulska, nonresident fellow in energy studies at the Baker Institute, during the webinar.

“It’s driven by external factors,” Mikulska said. “It’s driven by COVID, and it’s driven by governmental response to the pandemic, and fear that the pandemic has instilled in people.”

Drawing parallels to previous downturns is difficult, primarily because this crisis is unparalleled.

“It occurred faster, it seems to be much deeper, it’s experienced by literally the whole world,” Mikulska said. “Consumption fell drastically, very quickly. OECD lost approximately one-third of its demand, non-OECD approximately 20% of oil demand for 2020, as projected.

“And the prices are not there,” she said. “So even if we see a recovery going forward, we probably won’t see $150 per barrel prices anymore. That’s something that has to be kept in mind.”

That’s because, unlike the Great Recession, demand is not primed for growth this time. As the world emerged from the economic shock of 2007-2008, the U.S. shale revolution dovetailed with a surge in international growth, particularly in Asia. But while that growth in demand continued in developing countries, it was not universal.

“Oil fell during the Great Recession and really, when you look at it later on, it didn’t recover,” she said. “Even in 2019, we hadn’t recovered in terms of oil consumption to where we were in 2007.”

Consumption in the 36 industrialized OECD countries remains lower now than it was in 2008, Maher said. Much of that reduction was balanced by an increase in non-OECD countries of 14 MMbbl/d, with China alone accounting for 6 MMbbl/d of that total.

“The Chinese averaged 9.1% economic growth between 2008 and 2013,” he said. “That was a real driver for the world economy to start coming back from that recession, and especially a big driver for oil.”

In 2008-2009, Maher said, there was a huge demand push coming out of Asia. During that same period, oil prices bottomed out in 2009 to about $61. By 2013, oil was back to $110/bbl, so the oil industry enjoyed enormous demand growth with very high prices coming out of recession.

Just don’t count on it this time.

“That demand driver was not a result of what was going on in the United States or Europe,” he said. “And that’s something to keep in mind as we look at coming out of this next recession.”

One sector in the oil and gas world that has been kneecapped and likely to struggle for a while is jet fuel.

“Is there a structural change there?” Maher asked. “Will Zoom really cut back on future business travel? Are individuals’ fears of COVID meaning they’re not going to fly, they’re not going to go overseas? The airline sector is going to be a very interesting thing to watch.”

The unprecedented nature of this downcycle makes it difficult to apply the standard economic models that analysts are accustomed to using, Mikulska said. Until the pandemic eases, and government restrictions and public fear are lifted, any kind of increase in demand or economic recovery will necessarily be limited.

“That’s where this uncertainty exists,” she said. “We really are not able to know how we can recover, and how fast we can recover and how we can come out of the recession.”

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