• How China's Coronavirus Has Affected Oil

Analytical Instrumentation

How China's Coronavirus Has Affected Oil

Feb 07 2020

The global oil market is influenced by all kinds of variables and public health crises are no exception. Following China’s coronavirus outbreak, oil prices have embarked on a downward spiral, with alarm over the epidemic threatening to cut demand.

After Chinese officials terminated travel to and from Wuhan, New York futures dropped by 1.7%. United States industry data also suggests American crude stockpiles could increase, a trend that was triggered by warnings from Goldman Sachs Group Inc that the coronavirus outbreak could hinder global oil demand. The US isn't the only market feeling the sting, with concerns over the virus also sending Asian stocks into decline.

Virus brings Chinese Lunar New Year travel to a standstill

Restrictions on global travel is one of the major factors driving the oil price slump, with the outbreak occurring just before the Chinese Lunar New Year holidays, one of the busiest international travel periods in the world. By the end of 2020, Goldman warns coronavirus could reduce global oil demand by 260,000 barrels a day. The figure is based on the global reaction to the SARS epidemic in 2003, with analysts predicting a decline in jet fuel consumption could represent more than 65% of the loss. Currently, major airlines such as Delta, British Airways and American Airlines have suspended flights to and from China, which will have a serious impact on fuel consumption.

"The fear of a coronavirus pandemic depressing oil demand by curbing travel and trade is a real one,” says Vandana Hari of Vanda Insights, a Singapore based global energy market analyst.

Chinese oil demand sent into tailspin

China, the country at the epicentre of the coronavirus outbreak, is the world's largest oil importer. Over the past few weeks the outbreak has infected more than 28,000 people and severely strained the national economy, which has had a domino effect on oil demand. With Chinese demand on the downturn, the world is anticipating a strategic move from OPEC. Saudi Arabia has suggested cutting oil production by 600,000 barrels per day, though conflict from Russia has hindered the plan.

"The coronavirus has completely taken the oil market hostage," says Michael Tran, a strategist at global investment bank, RBC Capital Markets. "The market is watching what OPEC does with bated breath. If OPEC is not able to stick the landing, it will have a big psychological hit to the market."

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