Coronavirus Outbreak Impacting Crude Demand Forecasts
The outbreak of a novel coronavirus in China could reduce the country’s first quarter oil demand by more than 250,000 B/D. Because the virus has spread beyond China and is impacting other regions, the cumulative drop in global crude demand could be 500,000 B/D, according to oil and gas analysts at Wood Mackenzie.
The projection comes amid unprecedented quarantine measures, affecting the movement of more than 50 million Chinese citizens. More than 200 people have died from the virus, and more than 9,700 have been infected within mainland China, according to official numbers.
To prevent spreading the virus further, airlines around the world have in recent days also stopped flights to China or announced plans to do so. The World Health Organization declared the coronavirus outbreak a “Global Health Emergency” this week but called on governments to not overreact regarding international travel and trade.
The best proxy that economist and analysts have for the coronavirus outbreak is the 2003 SARS outbreak, which also began in China. However, current cases of the new coronavirus have already exceeded the total number of SARS cases and China’s economy and transport sector have grown by multiple fold over the past 17 years.
“Although the Chinese government has been taking action more swiftly in a more determined manner than in 2003, Chinese domestic and international transport activity is incomparably higher today and thus the impact may be larger,” said Yujiao Lei, a Wood Mackenzie consultant, in a statement.
Based on current preventive measures, China’s crude demand during the SARS epidemic, Wood Mackenzie has made the following predictions about the impacts of the coronavirus outbreak:
- The ongoing coronavirus outbreak will likely be a one-off event, with its effect on oil demand focusing mainly on jet demand principally in China and to a lesser degree in East/Southeast Asia. The impact on the other regions will likely be relatively modest.
- Chinese overseas travel increased from 20 million in 2003 to around 150 million in 2018 in terms of person-times. In 2018, Asia (predominantly East/Southeast Asia) accounted for nearly 90% of Chinese overseas travels. As a survey shows that more than half of Chinese overseas travellers prefer group tours, the ban on tour packages will severely restrain the number of Chinese visitors to popular destinations in East/Southeast Asia, such as Japan and Thailand.
- Gasoline demand will likely be less affected by travel restrictions per ser, except in the areas where the use of cars is newly restricted as a preventive measure against the epidemic. Gasoline demand, though, will likely be more susceptible to precautions taken voluntarily by consumers and businesses to avoid large crowds. People’s reluctance to spend time in crowded areas would restrain retail businesses and social events, further discouraging consumers from making trips. Besides, many companies are encouraging telecommuting to their employees, reducing the need for driving too.
- As the imposed transport restrictions focus principally on public passenger transport, the impact on freight transport will likely depend on overall industrial and economic activity in China. If the severe transport restrictions such as those implemented in Wuhan linger, they would also restrain the affected local economy. Clusters of automotive manufacturing and high-tech industries are located in Wuhan, while Hubei Province accounts for over 4% of China’s GDP. Meanwhile, China’s diesel demand is led principally by road freight, and unlike in 2003 when China was in the middle of resource/materials-intensive industrialization, road diesel demand has been weakening already since 2019. This weakness would be exacerbated by a slowed economy.
- The impact on the use of petrochemical feedstock will likely depend mainly on the overall status of manufacturing as well as private consumption. Since China is a net importer of ethylene/propylene derivatives, if China’s domestic petrochemical demand slows, it will likely first lead to a reduction in imports of petrochemical goods, affecting global operation of derivative exporters to China.
- China’s total in-land oil demand (excluding the marine sector) to grow by 150,000 b/d year on year in Q1 2020, a downward revision by over 250,000 b/d from our previous outlook in the early January 2020. For jet, gasoline and diesel/gasoil combined, in particular, demand is expected to fall by 100,000 b/d in Q1 2020. The low growth in total demand compares with annual average growth for China of over 300,000 b/d in 2019.
- Based on the assumption that the current outbreak will be largely contained within the coming few months, China’s total demand is expected to gain strength especially in the second half of the year, led mainly by petrochemical feedstock. For 2020 in total, our current forecast is for the coronavirus to lower our forecast for global oil demand by more than 100,000 b/d on an annual average basis to a projected gain of 1.2 million b/d for the year, but the risks are clearly on the downside.
Coronavirus Outbreak Impacting Crude Demand Forecasts
31 January 2020
Podcast: Discussion on COVID-19 with Johana Dunlop
An expert panel moderated by Johana Dunlop, SPE technical director for HSE and sustainability, covers a wide range of issues facing the double crisis of COVID-19 and historically low crude prices.
Upstream Digitalization Is Proving Itself in the Real World
For the upstream industry, where improvement in efficiency or production can drive significant financial results, there is no question that the size of the digital prize is huge. So are the challenges.
Russian Government Buys Venezuelan Assets From Its Own Oil Company
US sanctions appear to have prompted a change in ownership. It is unclear how the new arrangement will impact Venezuela’s diminishing ability to export crude oil.
No editorial available
Don't miss out on the latest technology delivered to your email weekly. Sign up for the JPT newsletter. If you are not logged in, you will receive a confirmation email that you will need to click on to confirm you want to receive the newsletter.
27 March 2020