China has the world’s second-largest economy in the world after the U.S. Moreover, it is one of the major oil consumers. As a result, the state of China’s economy directly affects global oil demand.
Ongoing coronavirus outbreak and restrictions imposed by the Chinese officials will have a dramatic impact on the oil demand. The International Energy Agency (IEA) expects that global oil demand to fall by 435,000 barrels a day in the first quarter of 2020.
Thus, oil demand may experience the first quarterly contraction in more than ten years. The International Energy released its monthly oil market report on Thursday.
The agency made the decision to cut its 2020 growth forecasts by 365,000 barrels a day to 825,000 barrels a day. It is the lowest result since 2011. The IEA mentioned that lower-than-expected consumption in the Organization for Economic Co-operation and Development (OECD) countries trimmed 2019 growth to 855,000 barrels a day.
This decision comes at a time when the number of patients infected with coronavirus reached more than 59,000 around the world. This virus continues to affect the market sentiment as China is struggling to deal with problems. Moreover, due to the outbreak organizers had to cancel economic forums and business conferences. The latest case comes from Barcelona, as Mobile World Congress was canceled due to this reason.
It is important to mention that officials are closely monitoring the situation. According to the World Health Organization, the outbreak represents a serious threat to the world. The Managing Director of the International Monetary Fund also commented on this issue. Kristalina Georgieva said that coronavirus would have a bigger impact on the world economy than the SARS outbreak. Ongoing outbreak is a serious challenge for China’s economy.
China’s Economy and oil industry
Despite all the problems, oil prices rose on Friday. Brent crude increased 81 cents or 1.4% to $57.15 per barrel. U.S. West Texas Intermediate added 74 cents or 1.4% to $52.16 a barrel. This week, WTI’s price increased by 3.2%.
According to IEA, the consequences of the new coronavirus known as “Covid-19” will be substantial for global oil demand, as wells oil prices and producers. Moreover, there was a chance that the market would move towards balance in the second half of 2020. However, it will be harder to achieve this goal.
China’s economy was slowing down before the coronavirus outbreak, but this virus became another obstacle for the economy.
Last week, the technical committee of OPEC, as well as non-OPEC allies led by Russia, recommended decreasing the daily output by 600,000 barrels. It means that daily production will decline by more than 2 million barrels in total. OPEC also reduced its forecast for global oil demand growth in 2020.