The slowdown in China’s industrial activity and the shutdown of factories amid the coronavirus outbreak is causing the worst shock to oil demand in over a decade, Jeff Currie, global head of commodities research at Goldman Sachs, said in an interview on Bloomberg on Thursday.
“The magnitude of the demand shock that we’re seeing is on par with 08-09,” Currie said, noting that one thing that distinguishes the coronavirus from SARS and other types of epidemics or pandemics is the magnitude of the quarantine across China.
“We estimate demand in China is down anywhere from 2 to 3 million barrels per day, which is on par with 08/09,” Goldman’s Currie told Bloomberg.
Goldman Sachs sees Brent Crude prices averaging $63 a barrel for the full year 2020, he added.
Earlier this week, reports emerged that China’s oil demand amid the coronavirus outbreak is likely inflicting the worst oil demand shock to markets since the financial crisis of 2008-2009. Chinese refiners—from the biggest refiner in Asia, Sinopec, to the independent refiners in Shandong—are cutting refinery runs amid weak fuel demand, while commodity trading houses and oil majors are scrambling to find spot buyers for crude oil outside China.
The economic slowdown due to the outbreak could cut global consumption by 300,000 bpd to 500,000 bpd for full 2020, which would be around 0.5 percent of global demand, BP’s chief financial officer Brian Gilvary told Reuters on Tuesday.
Energy consultancy Wood Mackenzie revised down this week its annual oil demand growth forecast for China for 2020 by over 200,000 bpd from the previous outlook in early January.
“The Q1 2020 fall in Chinese demand – a 200,000 b/d drop to 13 million b/d - is the first year-on-year decline in the country’s demand since 2009,” Ann-Louise Hittle, Vice President, Macro Oils, at Wood Mackenzie, said on Tuesday.
By Tsvetana Paraskova for Oilprice.com
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No one can quantify the loss of global demand until the coronavirus outbreak is contained and China is back in business. Still a loss of 500,000 barrels a day (b/d) amounts to 42% decline in the projected oil demand growth of 1.2 million barrels a day (mbd) in 2020. If this is the case, then global oil demand in 2020 could still average 101.8 mbd compared with 101.0 mbd in 2019.
Furthermore, once China is back in business, it may embark on a buying spree of crude oil which could offset all the losses incurred during the outbreak.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London