Oil futures ended sharply lower on Monday. The prices hit their lowest settlement in more than a year. All as a result of fears of declining demand in China, the biggest oil importer in the world. Brent crude scored $54, and WTI crude $49.99 on Monday.
The rapid spread of the virus and the precautionary measures harmed the global oil industry. The production products began to decrease by about 50% due to the reduced demand for oil. On the other hand, the prices of some petroleum products in East Asian countries have also started to decline. In particular the rates of aviation fuel, similar to what happens in China. It is not surprising. Many Asian countries canceled flights to and from China.
The decline in oil demand is a new phenomenon in the global markets. Observers expect a decrease in crude oil in the global demand in 2020. The drop will of about 8 % if the spread of the infection continues in the upcoming months. On the contrary, Alex Schneiter, CEO at Lundin Petroleum, thinks that the effect will be short-termed without any fundamental changes.
OPEC (The Organization of Petroleum Exporting Countries) and its allies, or what is known as “OPEC+,” will hold a meeting in February to discuss the impact of Coronavirus on global demand for oil.
Coronavirus influence on the world
Last week, the World Health Organization announced Coronavirus as an international emergency due to its spread to the far corners of the world. The virus has spread over the past days from the Chinese region of Wuhan to several countries, including Japan, Singapore, Australia, Thailand, the US, Germany, Vietnam, and others.
This epidemic continues to spread despite precautionary health measures. Some of the world’s largest airlines have suspended flights to and from China. Many travelers canceled their flights for fear of the epidemic. Lots of countries refused to grant entry visas to the Chinese; Health protection measures in the border entry areas emphasized both travelers and imported goods, especially Chinese ones.
Observers note that China is more transparent about the information for this epidemic compared to the SARS epidemic during the years 2002-2003. Still, despite this transparency, the decrease in demand for aviation fuel has led to a drop in global crude oil prices of about 6 to 8 dollars. Argos Consulting Group indicates that the decline in Chinese national income output by two points leads to a decrease in Chinese oil demand by about 260 thousand barrels of oil per day. Market information indicates that Chinese companies bought and imported vast quantities of crude oil to China. Totaling about 9.9 million barrels per day for January.
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