Crude Summit: Coronavirus impact may linger

Outbreak of the coronavirus may have a prolonged impact on the global economy and energy consumption because of China's rising share of world GDP, the head of crude oil trading at Cosmo Oil said.

China's initial attempts to contain the virus within the country have failed, with cases reported in other countries. The potential impact on fuel demand as a result of the virus can be gauged through a comparison to the Sars virus outbreak in 2003, Cosmo Oil's Mitch Kawaguchi said yesterday at the Argus Americas Crude Summit in Houston, Texas.

In the case of SARS, fuel demand fell initially by 150,000 b/d, mostly in jet fuel because of flight cancellations. Lost demand peaked at 600,000 b/d, he said.

Already bracing for a slowdown in demand, the Joint Technical Committee (JTC) of Opec and allied non-Opec producers have provisionally agreed to recommend that the group cut oil production by an additional 600,000 b/d in the second quarter this year, two sources present at an emergency meeting in Vienna told Argus.

The JTC — which has been meeting this week to assess the impact of the Chinese coronavirus outbreak on oil demand growth — has also agreed to recommend that the Opec+ group should revert to their existing production cuts in the third quarter and maintain them through the end of the year. The committee is still awaiting Russia's final position on the proposal.

Coronavirus could slow global oil demand by 500,000 b/d, according to one early estimate from BP.

The impact on demand from the latest outbreak may be worse because China's share of global GDP has risen to 18pc today versus 7pc in 2003, Kawaguchi said.

While it is still early to gauge the full impact, if the outbreak is not contained soon, "it could be the first ever global recession made in China," Kawaguchi cautioned.

But some of that impact may be absorbed by a possible recovery in other emerging markets such as India, which is planning a large increase in spending in massive infrastructure projects to expand the country's ports, rail and road networks, Kashinath Shanbhag, head of crude and LNG trading at Nayara Energy said.

"There is a huge potential for Indian growth," he said.

Both panelists said a clearer view on the impact on fuel demand from the coronavirus and the International Maritime Organization's (IMO) 0.5pc sulphur marine fuel emissions limit that went into effect on 1 January will emerge in the second half of the year.

And while US crude exports increasingly go to Asia, the Middle East is still the main source of supply and would carry the brunt of any slower demand, Shanbhag said.

Yet in a move that could possible offset this, many Middle Eastern state-run oil companies are buying stakes in refineries in India and elsewhere to secure an outlet for their oil, Shanbhag said.

By Manash Goswami