US vs Asia: The balance in demand for oil

As countries in Europe and the US begin to recover from the effects of the coronavirus pandemic, spurred by successful vaccine rollout programmes, Asia remains a completely different story. In May 2021, the US economy showed signs of dramatic recovery, alongside data claiming that unemployment rate had fallen by 9%. Additionally, the White House stated that President Joe Biden intends to implement a $6 trillion budget in 2022, part of which plans to go towards the commodities sector and in particular, oil.

The gradual return to normality in the US has seen many sectors pick up momentum, and with the ongoing resumption of normality, more and more people are taking to the roads, taking advantage of the fact that many attractions are back open. This has caused an increased fuel consumption throughout the US and subsequently has caused demand for oil to rise.

However, this positive news is counter-acted by the less than positive outlook in Asia, as countries continue to grapple with a rise in coronavirus cases. Rather than easing restrictions, many areas are having to be placed back in lockdowns, which will inevitably halt the recovery of many country’s economies. As a result, there is a clear imbalance between the US and Asia’s demand for oil, which we will explore throughout this article, looking at the implications that this will have on the commodity and on trading.

US oil demand

As the US economy continues to grow under the presidency of Biden, and a progressive return to normality spurred by a national distribution of the vaccination, the outlook looks positive for the recovery of oil demand. Analysts have gone so far to predict that based upon oil prices today and the estimations provided by the International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Companies (OPEC), oil demand should average 96.4 million barrels per day (BPD).

This positive outlook for oil demand is only supported by the ongoing recuperation of Britain’s economy, which has experienced a serious growth spurt, the likes of which have not been seen in over 70 years. The economy is predicted to grow by 7.25% in 2021, as the promised date for all restrictions to be lifted looms.

Asian oil demand slows

In stark contrast, Asia and specifically India’s recovery has been stunted by the rise of the Delta variant of the COVID-19 virus. In May 2021, the country recorded its highest daily death toll of over 250,000, as the country continue to battle the detrimental and tragic effects of the pandemic. The Indian government have since started a desperate attempt to get hold of vaccinations to slow down the transmission of the disease.

As a result, the demand for oil in Asia has been dropping, spurred by the economic decline of India and specifically, the fall in Indian fuel sales, as prices soared. To match this decreased demand, refiners in countries across Europe and Asia are going to receive a reduced supply of crude oil than they initially demanded for in June.

But what effect have these contrasting global outlooks had upon oil trading and specifically, the price of oil? In response to the strengthening of the dollar, combined with the Indian fuel sales falling in February, the global oil benchmark (Brent Crude) futures experienced a decline of 0.6%, with West Texas Intermediate (WTI) prices also recording a price reduction.

As ever, the commodities market is affected directly by supply and demand and this, paired with global uncertainty, has caused the markets to be particularly volatile recently. Therefore, if you’re planning on opening an investment in the oil market, it’s vital that you do your research, seek help from an online trading platform and employ a personal trading strategy.