We know. Up to this point, the European Union’s (“EU”) handling of the COVID pandemic has been nothing short of disaster. Political infighting, Brexit, nationalism, lack of a strong central leadership, lack of foresight, incompetence, risk aversion and hubris have all combined to create a slow and halting vaccination effort and a severe erosion of public trust. Lockdowns continue to this day and even the politically sensitive WHO has stepped up its critique, writing in part last Wednesday “[v]accines present our best way out of this pandemic. Not only do they work, they are also highly effective in preventing infection. However, the roll-out of these vaccines is unacceptably slow.”
We didn’t think anyone could outdo the US’ attempt at writing the manual for what not to do during a pandemic, but the EU is sure giving it a try. Per the WHO, 27 countries in Europe are in a partial or full nationwide lockdown, with 21 imposing night time curfews. In the past 2 weeks, 23 countries have intensified restrictions while 13 have eased measures, with an additional nine to follow suit. To date, only 10% of the EU has received 1 dose of the vaccine, and only 4% have received the full regimen. Yet, despite the starts and stop, challenges and inadequate efforts thus far, King Solomon’s timeless adage remains . . . this too shall pass.
Shots for Everyone
European vaccination efforts are about to receive a proverbial shot-in-the-arm. The European Commission expects an average of 100 million doses a month to be distributed throughout the EU from April to July.
The EU has a population of over 447M people, and about 90M are over the age of 65. Given that the JNJ vaccine requires 1 shot, whereas the AstraZeneca/Pfizer/Moderna vaccine requires 2, the deliveries will effectively inoculate ~205M people, almost half of the EU population. As of last week, the EU has made good progress on those over 80, but is waiting on supplies for the remaining cohorts.
Once vaccine supplies increase, the EU can finish dosing the roughly half of those over 80, and then begin dosing those over 65.
By July the European Commission projects over half of all Europeans will have been vaccinated, a figure roughly supported by Goldman Sachs’ forecast as well.
Similar to the US, those over 65 have a much higher risk of hospitalization and death from COVID. Consequently, once this group is fully vaccinated (or at least those willing to be), the pandemic’s impact in Europe will greatly subside.
So when will “things get better” for Europe? We anticipate the pall to lift by late-May/early-June, well before the majority of the population has been vaccinated. Why? Think about the current US recovery. The improving job numbers, relaxing restrictions and higher turnouts at restraurants, hotels and airports? That recovery started in early-March after we dosed everyone over 65. We only began dosing people under 50 a few weeks ago, which means that our original prediction that “vaccinating the elderly = accelerating an economic recovery” proved true. What occurred in the US and Israel will thus be repeated in Europe. Economic recovery will hasten once those over 65 have been vaccinated. Given that this should occur by the end of April, we expect a EU recovery beginning in May. Yes, it is that quick.
The key question for the EU is whether faster vaccine roll-outs and greater availability will bolster the populations’ confidence/perception of the vaccines? As the vaccine efforts in the US gained traction and showed increasing efficacy (and little side effects), more people were willing to get an injection. Those willing to receive one rose to 70% according to the Pew Research Center. In the EU, surveys have indicated that only ~40-60% of the population have said that they’re willing to get vaccinated, which is almost 90M people less at the midpoint. If so, the vaccination efforts in the EU may end by June simply because demand tapers off as fewer people want to be vaccinated. While this doesn’t bode as well for the prospect of herd immunity, it does free-up doses for the emerging markets. So just as the US releases manufacturing capacity for other countries once its vaccination drive tapers-off, so too will the EU. The vaccine snowball will be in full effect.
Ultimately, even if only 50% of those over 18 in the EU were vaccinated, COVID’s impact on the health care system will greatly diminish, allowing EU member states to lift economic restrictions. Doing so by July will allow the member states to preserve the coveted August summer travel season. What is a current drag on global recovery will soon be another tailwind.
OPEC+
For those in the oil thesis, the above is why we’re taking the recent OPEC+ decision to increase production in May-July in stride (i.e., 1M bpd on average or 2M bpd by July. By July, we’ll need the extra barrels to cover not only the increase in seasonal demand, but also the EU recovery. EU’s recovery alone (from its current moribund levels) will require 1.5-2M bpd of additional supplies, effectively offsetting all of the planned increase. While the market is also concerned about the potential for Iranian oil to return to the market (via a new JCPOA), the timing of that return is still uncertain despite the recent meetings in Vienna. For now, Iran is increasing its exports to China, and much of those barrels are coming from Iranian floating storage. The more China absorbs from this batch (estimated at 80M barrels in February by Energy Aspects), the less the market will have to incorporate when Iranian sanctions are fully lifted (H2 2021 is our take).
In the meantime, the global recovery continues apace as the vaccine snowball gains momentum. We’re looking forward to a wonderful summer.