• Oil and Gas

  Why air travel recovery won’t spark an oil price rally

  Posted by Nigel on 3 December 2020 at 6:09 pm

  Oil demand isn’t going to see a bump from air travel demand anytime soon, or so the International Air Transport Association (IATA) said in a recent press release.

  And when it says anytime soon, the industry body means that air travel won’t return to normal for years.

  And this air travel is exactly the shot in the arm that the oil industry needs right now.

  According to the IATA, 2.8 billion passengers are expected to travel in 2021. That’s 1 billion more passengers than it expects will travel in 2020.

  But that’s the extent of the good news as pertains to oil demand, which has seen considerable drop off this year as a result of all the pandemic-related lockdowns and travel restrictions imposed on the world.

  The bad news is, those 2.8 billion passengers expected to fly next year is still 1.7 billion fewer than in 2019. Percentage-wise, that’s still an ugly drop off.

  And the Revenue Passenger Kilometers, or RPK—a figure that the airline industry uses to track the total number of kilometers traveled by paying passengers—is expected to increase by 50 percent next year. Again, that’s the good news.

  The bad news is, this RPK is still 50 percent lower than in 2019.

  The 2021 air travel recovery, such that it is, will come mostly from domestic travel within North America and Asia. The European market, however, relies mostly on international travel, and this is expected to remain stunted.

  The IATA summed up their bleak forecasts with this:“Passenger volumes are not expected to return to 2019 levels until 2024 at the earliest, with domestic markets recovering faster than international services.”

  The extra-bleak “at the earliest” qualifier should have the oil industry—and OPEC specifically—shaking in their boots. And they are.

  Exxon, for starters, shocked the industry on Tuesday when it decided to—finally—write down some assets. And boy, did it ever. I guess when you are one of the five largest oil companies in the world, you have to do things big. Its write down—which came after years of catching flack for having a no write-down policy for years—crushed any expectations for such a write down at between $17 billion and $20 billion. That should signal to the market that Exxon does not expect that an oil demand recovery is right around the corner. Expect others to follow.

  With the collapse in demand and price companies are firing experienced staff by the thousands, leaving inexperienced people in positions they are poorly prepared for and lacking the safety training.

  

  Nigel replied 3 years, 5 months ago 1 Member · 0 Replies
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