How is Coronavirus Affecting Oil Demand?
''Global Oil Demand Shrinks, Hit by Coronavirus, IEA Says
Global oil demand is expected to fall in the first three months of the year—the first quarterly drop in more than a decade—according to a closely watched forecast from the International Energy Agency, which blamed a likely economic slowdown in China related to the novel coronavirus outbreak there.
The IEA also slashed its oil demand growth forecast for 2020 by 365,000 barrels a day, a cut of 30% to its previous forecast made in January. The IEA warned of a drop in oil demand this quarter of 435,000 barrels a day, compared with a year ago. That would represent the first quarterly drop in demand since the height of the financial crisis. Brent crude, the global gauge of oil prices, rose 1% to $56.34 a barrel Thursday but is still 18% below a peak hit early last month. U.S. crude oil added 0.5% to $51.42 a barrel and has also tumbled in recent weeks.
The IEA’s cut to its forecast demand growth was significantly larger than the one announced Wednesday by the Organization of the Petroleum Exporting Countries, which reduced its estimate by 230,000 barrels a day. “The consequences of [the virus] for global oil demand will be significant,” the IEA said in its report. It said “there is already a major slowdown in oil consumption and the wider economy in China.”
The Paris-based energy watchdog said China accounted for more than three-quarters of global oil demand growth in 2019, and its oil demand has more than doubled since the outbreak of the SARS virus in 2003. “There is little doubt that the virus will have a larger impact on the economy and oil demand than did SARS,” the IEA said. Economists have lowered their forecasts for Chinese economic growth since the city of Wuhan was sealed off on Jan. 23, and it became clear that factories and other businesses would suffer a loss of output as officials scrambled to contain the spread of the virus.
Assuming that and other lockdowns are lifted in April, most economists expect the damage to Chinese growth to be limited, with gross domestic product likely to be around 3% to 4% higher than a year earlier in the first three months of the year. Growth had previously been forecast at 5%, although economists expect much of that lost output to be recouped as the year advances, with only a limited impact on the global economy. Releasing new forecasts Thursday, the European Commission said it expects to see “relatively limited global spillovers.”
Weaker forecasts for oil demand come in the wake of double-digit-percentage drops in oil prices so far this year, with the spread of the pathogen forcing border closures, flight cancellations, and other travel restrictions across China.
The IEA reported that Chinese jet-fuel demand will fall 14% below last month’s forecast for 2020’s first quarter, while the country’s diesel and gasoline demand figures would fall 12% and 13% below last month’s forecasts, respectively. Reduced demand as a result of the coronavirus will also sting global refiners, the agency said, reducing its global refinery runs forecast for 2020 to 700,000 barrels a day. New bunker fuel regulations stipulated by the International Maritime Organization boosted sweet crude refinery margins, though.
Had the coronavirus not hit global demand, OPEC might have succeeded in balancing the oil market this year, the IEA said. The bloc’s cuts, now in their fourth year, were implemented to counteract rising non-OPEC production growth which the IEA says is now tailing off. The IEA held its 2020 non-OPEC production growth forecast at 2.1 million barrels a day and while U.S. growth will slow, that drop off will be partly mitigated by Norway, Brazil, Canada and Guyana.''