We are less than two months into the new decade and we’ve already seen multiple major oil market events. The first was the killing of Qasim Soleimani, the commander of IRGC’s elite group the Quds. The assassination caused oil prices to spike as talk of a regional and global retaliation from Iran ignited fears of a major supply disruption. Then oil prices received another boost as Phase One of the trade deal between China and the U.S. was signed in what observers hoped would mark the beginning of the end of the trade war. But these bullish drivers couldn’t keep oil prices from falling when the Novel Coronavirus (nCoV) caused the worst oil demand shock since 2008. Now, the trajectory of not only oil prices but also the trade war may have been irreversibly altered by this new epidemic.
The latest figures show that fatalities from Coronavirus (1,118 at the time of writing) have surpassed SARS (774). Oil prices are down more than 20 percent from their peak in January 2020. China’s oil demand has fallen by 20 percent (or 3 mbpd) and independent refiners have reduced their consumption by 30 to 50 percent. It is important to note here that under the Phase One agreement China, to fulfill its promise of buying $200 billion of goods and services from the U.S., needs to purchase about $52 billion of energy products over two years - buying at least $27 bn in 2020.
China’s current quarter GDP forecasts aren’t promising and once the review, which the U.S. administration will carry out later this year is done, things could well start to fall apart in the trade deal due to the snapback provision that is included.
OPEC appears eager to play its part in pushing oil prices higher but Russia still isn’t convinced about higher production cuts. What seems clear is that OPEC will not be making any decisions until its March meeting.
While the reaction to Coronavirus might be subject to sensationalism and this precipitous fall in prices may be temporary; the overall sentiment vis a vis oil prices has shifted towards very bearish territory. Even if everything returns back to normal it will take few months for the markets to recuperate.
With oil demand being hit hard; the likelihood of China fulfilling its commitment to the Phase One trade deal with the U.S. is very low. With that in mind, it seems likely that bears will rule oil markets for the rest of 2020.
By Osama Rizvi for Oilprice.com
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Your math is way off, China currently uses 13.5mm bbl of oil per day, not per month. I don't know their imports daily but they could easily cover it via buying more US oil.