As we’ve said from the beginning of the COVID crisis, the virus is the primary force shaping all oil and gas market outcomes. US mobility demand is highly likely to rise next year as herd immunity is reached through a combination of immunity from vaccination or infection. We expect life in the US will return to “normal” by mid-to-late summer, although vaccinations from Johnson & Johnson and Oxford/AstraZeneca could significantly accelerate this timeline to as early as mid-March.

That’s the good news. The bad news is that a new strain of COVID-19 may be up to 70% more transmissible than earlier variants, increasing the number of COVID infections, population morbidity, and total mortality. Even more stringent containment measures appear likely in the next few months, further constraining mobility demand.

Dark days lie ahead, but with the first vaccines receiving approval, we have likely reached the beginning of the end of the virus.

The good: vaccines

According to Bloomberg’s vaccine tracker, at least 500,000 Americans have already received vaccinations, while up to 5.1 million doses may be distributed through the week of December 21st. Vaccinations are expected to sharply reduce new infections, limit sickness, and provide support for mobility and energy demand. At the same time, a dangerous new strain of COVID threatens to increase the virus’ spread.

The bad: COVID still looms over this winter

The United Kingdom reports that the SARS-nCoV-2 coronavirus has developed a new variant called the B.1.1.7 lineage. The new variant may be up to 70% more transmissible than the UK’s previously primary strain; the UK also reports that B.1.1.7 has been circulating domestically since September. As of this writing, at least 40 countries have cancelled connecting flights with the United Kingdom (the United States, notably, has not). While flight cancellations seem appropriate, the hard truth is that it is extremely likely that other countries (including the United States) already have B.1.1.7 cases circulating domestically. In a nightmare scenario, COVID could mutate into an even more transmissible and deadlier strain than B.1.1.7 – although most public health experts believe this probability to be very low.

We expect that COVID cases will continue to rise rapidly over the winter, due to colder weather and the more transmissible variant. Mobility and crude demand will likely suffer this winter on additional COVID-related curtailments—at least until vaccines eliminate the threat.

The beautiful: the US could eliminate COVID as early as March

The next year could look much different. Fortunately, the new COVID variant does not appear, as of this writing, to degrade vaccine effectiveness, and vaccination progress is continuing apace. The Pfizer/BioNTech and Moderna vaccines are already being distributed, and additional vaccines could receive approval, accelerating the vaccination ramp (and a return to normalcy). We expect energy markets to track closely with results from the Johnson & Johnson vaccine, in particular.

The J&J vaccine, unlike the Pfizer and Moderna vaccines, only requires a single dose and can therefore be distributed quite rapidly. Clinical results from the J&J vaccine are expected in January. J&J says it seeks to produce at least a billion doses in 2021.

The Oxford/AstraZeneca vaccine could prove even more important. The OxAZ vaccine, if approved, could vaccinate up to a billion individuals with two doses in 2021. The OxAZ vaccine, which costs only $3-$4 per dose, could prove particularly important for developing economies and crude/LNG demand in south and southeast Asia.

If J&J receives FDA approval in February, and OxAZ quickly follows suit, vaccines could ensure that the US reaches effective herd immunity (through immunity from vaccination and/or infection) by March.

We will continue to monitor COVID dynamics, which are driving all oil and gas market outcomes. While the new B.1.1.7 COVID variant is highly concerning, it does not appear likely to derail vaccination progress. We continue to believe that 2021 will be a much better year than the current one.