Oil Prices, The Demand Dilemma And The Pace Of Economic Recovery
Ellen R. Wald, Ph.D | Feb 04, 2021 05:39AM ET
With the price of oil up in the last three months (the Brent heading for highs we haven't seen in years.
As we know, the price of oil is a mixture of market sentiment and fundamentals, meaning supply and demand. Right now, supply is easier to gauge.
We know that BP (NYSE:BP) said it “still expects oil demand to recover in 2021 but added that the pace and degree of the rebound depend on governments' policies and vaccine roll-outs.”
Positives for demand do include the increased availability of coronavirus vaccines and treatments as well economic stimulus . Even with continued lockdowns and restrictions in many jurisdictions, human interaction and commerce cannot be entirely halted. We are still using oil.
However, oil demand numbers are dependent, in part, on the health of the economy, and there is negative news about the future of the described the U.S. economy as “spiraling downward.”
Despite vaccine optimism, many businesses are still experiencing deep financial distress, according to a South America , which is not expected to recover to pre-pandemic GDP levels until at least 2023.
Yet, most economic recoveries are quick. After the 2008 financial crisis, the economy took years to fully recover, but that was an anomaly. Historically, the deeper the recession, the sharper the recovery. This type of quick recovery is often referred to as a “V-shaped recovery.”
The question today is whether our recovery (with continued government-imposed restrictions and fear of illness in large portions of the population) will resemble historical norms or will be something new because of the unique conditions of this particular economic trauma.
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