The coronavirus pandemic will take a lasting chunk out of business travel and hit demand for oil as companies adapt to Zoom ZM, -1.30% and other video-conferencing tools, a Goldman Sachs GS, +1.44% official said Thursday.
“I think you’re going to lose a good chunk of the jet demand that would have been associated with business travel. Our base case is you lose somewhere around 2 to 3 million barrels per day,” said Jeff Currie, Goldman’s global head of commodities research, at a media briefing.
Global oil demand is expected to fall by 9.3 million barrels per day in 2020, according to the International Energy Agency.
Demand for oil has been hurt significantly by the pandemic as countries impose lockdowns to control its spread, and countries have cut supplies. In April, futures for West Texas Intermediate crude traded below zero for the first time ever.
For everything but business travel, Currie expects a strong recovery in demand, but the oil supply could take a little longer to get back online.
“We believe demand will exhibit a V-shaped recovery, but supply will exhibit an L-shaped recovery,” he said, as wells need to come back online, and companies need to increase spending. This could mean demand rises above supply as early as June 1, he said.
But while demand returns to normal, it will be from a base with less business travel. “Before we used to have these internal meetings and things of that nature, and I think this is going to be way more Zoom-oriented, other types of substitutes,” he said.
“Look at the routes that the airlines are planning when they come back, they’re not going to be at the same level that they were previously.”
Airline stocks have plunged since the beginning of the crisis as almost all air traffic has come to a halt. In April British Airways owner IAG warned that the “recovery of passenger demand to 2019 levels will take several years.”
Currie believes the U.S. will recover similarly to China. “So far, we look at the rest of the world, it followed China almost perfectly on the way down and thus far is looking pretty much like China on the recovery,” he said. But the return to pre-crisis levels could come as late as the third quarter of 2022.
Storage facilities are verging on full, and Currie says expensive floating storage units will need to be emptied before prices can start to increase. Inventory levels may take until mid-2020 to normalize, at which point prices will stabilize around $50 per barrel.
Brent crude BRN00, -0.54% traded over $30 per barrel on Thursday and has climbed 16% over the last five days.