Oil Prices Have Tumbled as the Coronavirus Spreads

The advance of the coronavirus throughout the globe has battered economies as authorities have demanded that individuals “shelter in place”. The virus is extremely contagious, allowing social gatherings to be a major reason why the spread has become a pandemic. Several cruises lines have close their doors as thousands of people became stranded on boats as the virus spread in confined quarters. The spread of the virus has reduced global demand as transportation and hospitality have come to a standstill. Moving forward, the demand for energy will likely continue to remain depressed until the spread of the virus starts to peak and withdraw.

Travel and Hospitality Get Hammered

The travel and hospitality industries have been hit the hardest as a mandate of social distancing, immediately put these sectors in hibernation. Restaurants and bars have been forced to close and air travel has been completely wiped out. The US Transportation Security Administration (TSA) reported on March 26, that only 8% of the 2019 travelers flew on the same day in 2020. This was the first time since the coronavirus pandemic reached the US that the year over year percentage of fliers dropped below 10%. The drop in air travel has coincided with a huge drop in demand for cruises. Unfortunately, many of these companies will continue to suffer, as there is no relief for them in the new stimulus bill.

Continued Bad News for the Cruise Lines

Social distancing has destroyed the cruise line business, forcing many companies to cancel trips to conserve expenses. With millions of Americans mandated to “shelter-in-place” the cruise lines have seen their stock prices fall by more than 70%. Unfortunately, Congress has decided to leave these companies for dead. The funding bill, passed by the President, that would apply to the cruise industry limits aid to “an entity or business that is domiciled in the United States with significant operations and employees located in the United States.” That restriction would likely exclude several of the largest crude companies such as Carnival Corp., Norwegian Cruise Line Holdings Ltd., and Royal Caribbean Cruises Ltd.

There is No One on the Road

The coronavirus has significantly reduced US road travel. People are not going to work and sheltering at home which means that there are fewer people on the road. Gas Buddy estimates that demand has dropped to approximately 30% of the norm. While petroleum demand will be negatively impacted by declines in cruise travel and a reduction in air travel, the lack of gasoline demand is deadly. The total airline demand in 2019 was 18.27 billion gallons. Air travel will likely hold at 10% or below for the next 30-days (according to the more recent White House advisory). For every month that the airline industry is down approximately 1.37 billion gallons (10% of what has historically been used each month), is added to inventories which are now bloated. This is minor compared to the 142-billion gallons per year of demand that is created from automobile demand.

One this that has picked up is truck delivery travel, which has helped buoy diesel demand, but this has been overwhelmed by the enormous drop off in airline, cruise, train, and automobile demand.

The Bottom Line

The coronavirus has completely eroded energy demand, generating volatility in for crude oil inventing. The hospitality industry has nearly come to a halt. Driving demand has been put into hibernation as several billion people across the globe have been told to shelter in place. In Indian, more than 1.3-billion people are stationary for the first half of April 2020. Until the spread of the coronavirus has peaked, demand will not rebound.