Up the Down Staircase: What History Teaches Us about Oil Demand after a Crisis

Abstract

Although the scale of oil demand destruction from the Covid-19 pandemic is unprecedented, it does not mean there are no precedents to help us think about what oil demand will look like after the crisis passes. Marie Fagan, Chief Economist at London Economics International (“LEI”) and a colleague completed a study of 40+ years of global oil supply and demand shocks, which provides insights as to how oil demand responds after a crisis. This study examines economic growth, and oil demand and prices (crude oil, gasoline, and diesel) at the country level for OECD, non-OECD, and oil-producing countries. Based on examination of the data, econometric analysis, and a review of the literature, what history teaches us is that declines in global oil intensity come in large stair-steps, not gradually. Once oil intensity drops down a stair-step, it does not fully recover to previous levels, even after many years.