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Coronavirus Drives Sharpest Oil Demand Drop Since 9/11

John Hill/Wikimedia Commons

Oil consumption in China is down 20 to 25% this month and at least one market analyst firm has cut its projection for global oil prices, as the coronavirus drives the biggest demand shock fossils have seen since the 2008 economic crash, and the most sudden one since 9/11.

Bloomberg reports [1] China’s demand down by 20%, or about three million barrels per day, and Australian Financial Review has Chinese energy executives projecting [2] a 25% drop this month. The price squeeze “could force the hand of the OPEC cartel, which is considering an emergency meeting to cut production and staunch the decline in prices, which are headed for the lowest close in a year,” Bloomberg says.

“China is the world’s largest oil importer, after surpassing the U.S. in 2016, so any change in consumption has an outsize impact on the global energy market,” the news agency adds. “The country consumes about 14 million barrels a day—equivalent to the combined needs of France, Germany, Italy, Spain, the UK, Japan, and South Korea.”

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Plummeting demand “is starting to reverberate across the global energy market, with sales of some crudes slowing to a crawl and benchmark prices in freefall,” Bloomberg wrote last week. “Sales of Latin American oil cargoes to China came to a halt last week, while sales of West African crude, a traditional source for Chinese refineries, are also slower than usual.” The shift has Chinese refiners stockpiling unsold gasoline and jet fuel, and with volumes rising by the day, “some refineries may soon reach their storage limits. If that were to happen, they would have to cut the amount of crude they process. One executive said refinery runs were likely to be cut soon by 15-20%.”

The mounting global health crisis has analysts at Fitch Solutions Macro Research cutting their projection for benchmark Brent crude oil about 5% since January, to US$62 per barrel. “An already bearish outlook for Chinese demand in 2020 looks set to worsen, compelling us to revise down our 2020 price forecast,” Fitch wrote in a report obtained [4] by industry newsletter Rigzone. “The outbreak of the novel coronavirus in China has hit oil markets as uncertainty around the full impact grows.”

“While the full extent of the demand impact remains a key unknown, early indications are that we are experiencing a sharp downturn in refinery runs and crude imports into China,” Fitch added. “We caution that the virus may further significantly curtail overall fuels consumption growth in China for the year, with a heavy impact on jet fuel demand growth [5].”

Bloomberg summarizes moves by OPEC and its allies, including Russia, to try to stabilize global oil prices. “Nothing concentrates a producer’s mind more than the prospect of a crude oil price bust,” said Rapidan Energy Group President Bob McNally, a former White House oil official during the epically fossil-friendly presidency of George W. Bush.