As more cases of Coronavirus are reported further travel restrictions in China is hitting crude demand, reports Phil Flynn.
Coronavirus demand destruction barrels are starting to mount as the U.S. Centers for Disease Control (CDC) and Prevention is dissuading its citizens for no travel to China. Reports now show that the confirmed cases of the virus across the globe stand at 4,295 and the official death toll at 106 people. The CDC warned that because of government lockdowns, there is little transportation in and out of Hubei Province, and “limited access to adequate medical care in affected areas.”
That warning is potentially another hit to oil demand that is already reeling. The Chinese authorities previously acknowledged that over the weekend traffic by road, rail, and air at the start of the week-long holiday season fell by 29% from a year earlier. S&P Global Platts reportedly is predicting an oil demand drop of about 200,000 barrels-per-day over the next few months. Yet that may be a conservative estimate.
If you compare the growth of the Chinese economy since the SARS (Severe acute respiratory syndrome) outbreak in 2003, they command a march larger share of the global economy and demand for oil as well. That could cause a drop of 700,000 to 800,000 barrels of oil a day and half of the projected global oil demand growth expectations for this year. China was importing more than 10 million barrels of oil per day. Reuters wrote, citing Barclays, that, “If air passenger traffic in China declined by half in the first quarter of 2020, it would likely lead to a 300,000 barrels per day year-on-year decline in jet-kerosene demand from China.”
Many are questioning whether China moved fast enough to contain the virus, and others are asking whether OPEC will move soon enough to adjust output in a new Coronavirus oil world. The other question with the Federal Reserve’s Open Markets Committee (FOMC) at the start of their meeting is whether they will also take steps to adapt to the Coronavirus world. Right now, because of the virus, the Fed Funds futures are pricing in a 25 basis point rate cut for September. Perhaps more important is their continued repo activity.
S&P Global Platts reports that OPEC members are considering deeper production cuts, or extending their existing deal, in response to a slump in prices caused by the outbreak of Coronavirus in China, according to a source in the group. "The next two weeks are very critical for not only the oil market but the global economy," the OPEC source said Monday, speaking on condition of anonymity.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
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