Posted as an opinion piece by Ed Crooks, Vice-Chair, Americas, Wood Mackenzie. For resources regarding COVID‑19’s impact on the energy industry, visit the Wood Mackenzie Coronavirus Research Hub.
“Our focus is to keep you safe, while also restoring your ability to get back to work: to open your businesses, to pay your bills, to put food on your tables.” With those words, Governor Greg Abbott of Texas on Monday announced the start of phase two of his plan for opening the state up for business again. The new regulations permit restaurants to increase occupancy to 50%, up from 25% in phase one, and allow offices, manufacturing plants and gyms to reopen. The coronavirus remains a real danger, Abbott said, but “our goal is to find ways to coexist with Covid‑19 as safely as possible.”
All 50 US states have now announced some relaxation of the restrictions put in place to curb the spread of coronavirus infections, and energy demand is beginning to recover. The early evidence on reopening America has been encouraging in some respects, but has also highlighted some of the harsh realities of coexistence with Covid-19.
The good news is that the states that have been reopening have not shown any clear signs of a surge in infections. Georgia began easing its restrictions on businesses on April 24, Texas on May 1 and Florida on May 4, and cases have not started running out of control in any of them. Texas has recorded a steady rise in cases in May, but that appears to have been a result of a sharp increase in testing.
There are important issues of data quality with these numbers. Texas and Georgia are both reportedly combining results for two quite different tests: the viral test for whether you have an infection right now and the antibody test for whether you have ever had it in the past. That makes the statistics more difficult to interpret. The incubation period of up to 14 days between infection and first symptoms of Covid-19 also means that these early indications from the reopening states should be treated cautiously. There have been reports of “hot spots” of cases flaring up in some parts of those states.
Still, the trends so far look encouraging.
The less good news is that the number of new coronavirus cases may be remaining subdued because life in the reopening states is still far from normal. Many people are still being careful, and many businesses such as restaurants still face restrictions. Data from a sample of 20,000 restaurants using OpenTable, the online booking service, show that the number of people dining out in Georgia, Texas and Florida this week was down 73%-89% from its levels of a year ago.
As a result, the economies of even the reopening states are still very weak. The Opportunity Insights Economic Tracker showed that the number of people employed by small businesses in Georgia last week was down 37.5% from its level in January. Spending has been going to online retail and large chains, while small businesses’ sales have slumped.
Despite the hammer blow to the economy, however, Americans are getting out and on to the roads again. Data on requests for directions from Apple Maps show that in Georgia, Texas and Florida, activity has been getting close to its levels in January.
And as a result, gasoline demand has been picking up strongly. In the week to May 15, US gasoline consumption of 6.79 million barrels a day was up about 35% from its low point in early April, although it was still down 28% from its level of a year ago, according to the Energy Information Administration.
For jet fuel, meanwhile, the recovery has barely begun. US jet fuel consumption in the week to May 15 was down 59% from the equivalent week in 2019, the EIA data show.
As state governments continue to ease restrictions and economic activity picks up, US oil demand can be expected to continue to grow. It will take time for consumers to regain their confidence, however; and even longer if unemployment remains high. And if Covid-19 cases do flare up in any of the states that are reopening, it is likely that lockdowns will be brought back again. In assessing the outlook for demand in the US, watching the data for coronavirus cases, and understanding what those cases mean, will be crucial.