Oil prices fell to their lowest in over a year as coronavirus diminished crude demand from Chinese refineries, while OPEC considers deepening production cuts.
Brent crude fell below $55 per barrel, the lowest since January 2019.
As the virus outbreak has resulted in limited travel and consumer demand, the world’s biggest crude oil importer, China’s refiner Sinopec Corp told its facilities to cut throughput this month by about 600,000 barrels per day (bpd), or 12 per cent, the steepest cut in more than a decade, according to Reuters. Independent refineries in Shandong province, which collectively import about a fifth of China’s crude, cut output by 30 per cent to 50 per cent in a little more than a week, it added.
Meanwhile, Reuters cited sources as saying that The Organization of the Petroleum Exporting Countries (OPEC) and its allies, are considering a further 500,000 bpd cut to their oil output in order to stabilise prices and remove the expected build-up of crude inventories as demand slumps.
The Wall Street Journal reported that another option being considered would involve a temporary cut of 1 million bpd by Saudi Arabia.
In a forecast on China’s GDP impact from the virus, Wood Mackenzie’s Asia Pacific vice chair, Gavin Thompson said: “factoring in relatively quick containment, we expect slower Q1 growth at 5.8 per cent year-on-year before a notable rebound to 6 per cent in Q2 and then a return to our previous slowing trajectory. In effect, our forecast for China's GDP growth in 2020 is unchanged at 5.8 per cent.”
In forecast for Chinese fuel demand, Thompson expects Q1 2020 China demand to decline by over 450,000 bpd versus 4Q 2019 (a 3.5 per cent drop). "February demand really suffers, but if containment starts to work by early Q2 then a strong rebound in demand is likely through early summer, as we saw post-SARS in 2003. Even with this, China’s overall annual oil demand growth for 2020 has been revised downward by over 200,000 bpd from our early January outlook,” he said.