A fast-spreading coronavirus in China has sent shockwaves through global energy markets, prompting OPEC and allied producers to consider deepening crude supply curbs as Asia’s largest oil refiner has slashed over a tenth of its output.
More than 1,350 people have died as a result of the virus, most of them in China.
Bracing for an oil demand falloff
Because of the outbreak, oil demand is set to fall year on year in the first quarter for the first time since the depths of the financial crisis in 2009, the International Energy Agency (IEA) said on Thursday.
The Organization of the Petroleum Exporting Countries and the U.S. Energy Information Agency also cut their outlooks for demand in 2020.
Global commodity trader Trafigura Group expects the outbreak to cut 2020 global oil demand growth by 300,000 barrels per day (bpd) to around 1 million bpd, CEO Jeremy Weir told Fox News.
Brent crude LCOc1, the global benchmark, is down roughly 15% since the beginning of the year as the virus has spread.
Some Middle East crude oil producers have asked Asian buyers if they could take more crude under their term supply contracts, as Chinese refiners cut purchases due to the outbreak, sources close to the matter told Reuters on Thursday.
Iraq’s Oil Marketing Co (SOMO) and Kuwait Petroleum Corp (KPC) have asked buyers if they have room for more crude cargoes loading in March, five sources said.
Qatari energy companies are “actively engaged” in accommodating rescheduling or re-routing requests on some deliveries of oil and gas cargoes to China, the Qatari energy minister said on Wednesday.
North Asia LNG tankers change course
Four liquefied natural gas (LNG) tankers bound for North Asia have changed destination or diverted after the outbreak hit gas demand in China, five sources said.
In addition, 15 LNG tankers are flagged as “floating storage” globally, with 11 scattered across Asia, Rebecca Chia, LNG analyst with data intelligence firm Kpler told Reuters.
Several analysts cut gas demand forecasts for China, expecting the outbreak to depress industrial, commercial and transportation appetite in the world’s top gas importer.
Estimates for the impact varied among five analysts who provided views for China’s gas demand to Reuters.
State-run ChemChina has joined Chinese refining peers in slashing output, lowering production by around 100,000 barrels per day (bpd) as the epidemic cuts fuel demand, three people with knowledge of the matter said.
The cuts by ChemChina, formally known as China National Chemical Corp, take total reductions by refiners in the country, including state majors Sinopec, PetroChina, CNOOC as well as independent plants, to some 1.5 million bpd over just two weeks.
Early stages of the outbreak crisis led to a 70% fall in international air traffic in China while domestic air travel fell 50%, the International Energy Agency (IEA) said.
It cut its first-quarter Chinese jet fuel demand forecast by 14% or 125,000 barrels per day (bpd) and its second-quarter forecast by 15%, or 140,000 bpd.
OPEC, allies consider supply cuts
The Organization of the Petroleum Exporting Countries and its allies are in discussions to bring forward a policy meeting to this month from March, and to consider deepening oil supply curbs by an additional 500,000 barrels per day to 2.2 million bpd.