Global oil demand is expected to suffer its first quarterly contraction in over a decade, according to the International Energy Agency (IEA), with OPEC also revising downward its crude demand projections, and both organizations blaming the coronavirus for the sectors woes.
The spread of the deadly virus, known officially as COVID-19, has both disrupted the economy of China, the worlds biggest importer of crude, and shaken energy markets.
Brent crude oil futures have fallen over 20 percent since the beginning of the year and have remained choppy into February, struggling to retrace any significant gains.
“Global oil demand has been hit hard by the novel coronavirus (Covid-19) and the widespread shutdown of Chinas economy,” the IEA said in its February 2020 Oil Market Report.
Demand is expected to contract by 435,000 barrels per day (bpd) in the first quarter of 2020, the Agency said, which is the first quarterly decrease in more than a decade. For 2020 as a whole, the IEA has reduced its global oil demand growth forecast by 365,000 bpd to 825,000 bpd, the lowest level since 2011.
OPEC, meanwhile, noted in a separate report that world oil demand for all of 2020 is now expected to rise by 990,000 bpd, which is around 19 percent less than its earlier forecast.
“The impact of the coronavirus outbreak on Chinas economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth,” the report said.
“Clearly, the ongoing developments in China require continuous monitoring and assessment,” OPEC added.
Coronavirus Outbreak Defies Analysis
Oil prices ticked up on Friday and were on track for their first weekly gain since early January as investors bet the economic impact of the virus might be short-lived.
Brent crude was up $1.05 cents, or 1.9 percent, at $57.39 a barrel by 1437 GMT. It has risen 5.4 percent since last Friday, its first weekly increase in six weeks.
U.S. West Texas Intermediate (WTI) was 74 cents, or 1.4 percent, higher at $52.16 a barrel, up 3.7 percent for the week.
“Experts following the oil markets are throwing up their hands. The coronavirus outbreak defies analysis,” said J. Jay Park, CEO and Founder at ReconAfrica, an oil and gas company. “None of the markets are acting consistently with what happened in the past. This seems like sentiment is overtaking the market. The price of oil now does not justify the actual demand for oil.”
“Experts also are saying 1 million to 3 million barrels a day are being affected by a demand crunch. Thats only 1 percent of production. That shouldnt translate to a $13 drop in prices,” Park told The Epoch Times in an emailed statement. “The demand for oil and gas is inelastic, so price changes are always more severe than demand. If demand goes down a little, the price goes down a lot. In other words, the coronavirus impact does not justify a 20 percent price reduction.”
“All in all, I think fear is driving the market,” he added.
Cant Help But Move to Risk-off Trades
On Thursday, Chinas Hubei province, the epicenter of the coronavirus outbreak, reported 14,840 new cases of the virus as of Feb. 12, up from 1,638 new cases on Tuesday. The number of deaths in the province rose by 242, a daily record, to 1,310, according to official figures, which carry an overcast of uncertainty due to widely reported questions around accuracy and manipulation.
“When you see numbers like this, you cant help but move to risk-off trades, which means buy the yen and sell stocks,” said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo, in comments to Reuters.
Wall Streets main indexes eased from record highs on Thursday, while a day earlier, investors bought on signs that the virus spread was slowing, lifting the benchmark S&P 500 and the Nasdaq to their third straight closing highs.
The VIX, which measures volatility in the S&P500, spiked on Thursday as coronavirus news buffeted markets, but then fell, suggesting easing of investor concern.
“It seems as if every time theres new coronavirus news, the market sells off and thRead More – Source