As the beginning of 2021 coincided with a crucial OPEC+ meeting, the beginning of the year kickstarted an oil price rally that is now running out of steam.

Markets are struggling to hang on to the generous gains oil prices formed in previous weeks, as traders fear that the pandemic will still keep on affecting global economies and mobility.

Oil has been enjoying a mini up-turn on wrong assumptions that the vaccines that everyone hoped for would quickly be applied and also cure oil demand.

Vaccination campaigns, although ongoing, are lagging the speed needed to fast-track a global recovery in the first quarter and the come-back for oil demand will be slow.

Nobody likes waiting long and waiting for the world to be vaccinated takes much more time than the market can tolerate, with enthusiasm-built prices naturally slowing down, steady at the moment and trying to hold on to current levels.

Prices recovered early losses as traders are betting on China’s positive economic data, hoping the country will continue to be a safe haven for oil demand in 2021.

In Europe, we observe a visible decline in road fuels demand, which now stands at around 4.99 million bpd (on average, a 24% reduction compared to pre-virus levels) which is still lower than the 40% drop in Apr-20.

We expect demand to start recovering again in Feb-21, if restrictions are softened.

At the same time, road fuels demand in the US currently stands at around 10 million bpd, an 18.1% decline compared to pre-virus levels which is lower than the 35% drop registered during Apr-20.

A patchwork of different measures has been introduced across states to curb the spread of the virus: some governors are closing sectors that had reopened after spring lockdowns, while others are letting businesses open but with stricter capacity limits.

With restrictions in Europe in place until the end of Jan-21, and on top of this the extension of new measures in the US, we do not expect road fuels demand to recover to pre-virus levels in 1Q21.

Covid-19 is spreading again in China. Rystad Energy’s Daily Road Demand Index shows road fuels demand has fallen by 25% in Hebei region, so far the deepest drop since Feb-20, when demand was only 64% of pre-virus levels.

It will serve as a test for how the Chinese government copes. The strategy so far is a rapid response of mass testing and local quarantines, actions that were successful in halting the spread in China during the first wave of the pandemic.

It would be premature to declare the outbreak as a second wave in the country. Some more weeks will be needed to assess the effects of the lockdowns and the reaction of oil demand in China.