After on Friday OPEC slashed its oil demand outlook for this year by 230,000 bpd, the Energy Information Administration followed, revising its global oil demand forecast by as much as 378,000 bpd on the back of the Chinese coronavirus outbreak.
The authority said it expected the outbreak to reduce China's oil demand by some 190,000 bpd this year due to travel restrictions prompted by the outbreak.
OPEC last Friday said it expected global oil demand to rise by 990,000 bpd this year, most of which will come from non-OECD countries. OECD demand, the cartel said in its February edition of its Monthly Oil Market Report, will grow by a modest 100,000 bpd.
The International Energy Agency went further: it warned that global oil demand will actually take a dip during the first quarter of the year because of the coronavirus outbreak. The dip will be significant, the IEA said, at 435,000 bpd, representing the first contraction in demand in a decade.
As for the rest of the year, the IEA said it expected demand to grow by 825,000 bpd, a downward revision close to that made by the EIA, at 365,000 bpd.
These updates should be worrying for oil producers even though some observers are already talking about a quick recovery.
OPEC's efforts to prop up prices have run into the coronavirus effect and now their best hope is that Libya's production does not begin to recover anytime soon.
In the United States, shale producers are facing billions in looming debt repayments this year and during the next three, combined with a growing cautiousness on the part of banks to provide fresh financing.
Even so, prices have recouped some of the loses they suffered earlier this month from news that Chinese refiners are shrinking their run rates, with Brent crude climbing closer to $60 this week and West Texas Intermediate at over $53 a barrel.
At the time of writing, Brent was trading at $58.29 a barrel, with WTI at $53.11 a barrel, both up by more than a percent from yesterday's close before trade started in the United States.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The EIA is projecting that the outbreak will reduce China’s oil demand by some 190,000 mbd this year from 14.24 mbd in 2019 to 14.05 mbd in 2020.
However, until China is out of quarantine and open for business with its factories churning goods for the world, no one can accurately quantify the eventual impact of the outbreak on global demand and China’s and also on prices. Therefore, any price or demand forecasts are no more than guesswork.
Once the outbreak is declared under control, global oil demand and prices will recoup all their recent losses and more. In fact, oil prices have already recouped part of their previous losses. Moreover, China’s economy will most probably behave like someone who has been starved of food. Its appetite for crude oil will be rapacious with oil imports surging to 11.76 mbd as they did in the last quarter of 2019.
Based on this and also a continuation of the de-escalation of the trade war, oil prices could average $67-$70 this year.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London