Lockdowns in Europe undermine fuel market growth

The surge of Covid-19 in Europe provoked new lockdowns and thus limited the travel options. The latter pressed down the expected recovery of the fuel market. Most of Europe is now under strictest restrictions, according to the Oxford stringency index quoted by Reuters, which assesses indicators such as school and workplace closures, and travel bans. In November only four European countries had imposed similar lockdowns.

The United Kingdom imposed a new national lockdown last Monday that is anticipated to go through until mid-February. The German government extended a strict lockdown until end of January, and Italy extended to 15 Jan. a ban already in place on movement between 20 regions.

As the result, traffic in London, Rome and Berlin sharply fell in late December and early January, according to data provided to Reuters by location technology company TomTom. These trends are unlikely to reverse significantly in the coming weeks, BCA Research said in a note, and the pandemic will remain a key challenge for fuel demand in the front-end of 2021, albeit to a lesser degree than last spring. The return of more aggressive lockdowns was already weighing on fuel sales.

Average sales per filling station in Great Britain were 21% lower than the previous week, government data showed, a decrease that the report attributed to low sales around the Christmas period and Covid-related restrictions. Goldman Sachs said its updated first-quarter 2021 market balance outlook had weakened, due to renewed lockdowns. OPEC also said that emergence of a new strain of the virus and curbs on social activities put more downside risks on oil markets in the first half of 2021, forcing most of members to keep production steady while Saudi Arabia offered a big voluntary cut.

“The Kingdom’s pre-emptive move suggests to us a desire to defend prices and support the oil market amid demand concerns due to extended mobility restrictions in Europe,” UBS analysts said, predicting a rebound in the market only in the second quarter of 2021 driven by vaccinations and increased travel.

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