The outbreak of Coronavirus is making the global oil industry bite its nails as this social crisis is bringing concerns to the commodity, said Motilal Oswal in a report.
The outbreak of Coronavirus is making the global oil industry bite its nails as this social crisis is bringing concerns to the commodity, said Motilal Oswal in a report. The anxiety of the virus led the oil slide to 11-months low as the demand for jet fuel will be impacted in China. The country, which is the largest consumer for crude oil, will see fewer migrations because of Coronavirus. With cities being on lockdown, travelling to the country ahead of the Lunar New year holidays, the biggest human migration in the world is unlikely, said the report. Due to this, the spike in demand for jet fuel might be dented.
“Oil markets have always been obsessed with the Chinese economy as Chinese oil demand is growing by 5.5% per annum at 13.5Mbpd in 2018. With Wuhan and now Huanggang city on lockdown, the fear is that food and medical supplies will become thin and that we could see more travel bans throughout China,” the report added. According to Motilal Oswal, the oil markets have been suffering for the whole year due to slowdown in global demand. However, the investors had somewhat expected the demand to go up during this period as this holiday season in China is usually a boom for the travel industry and a time when jet fuel and gasoline consumption increases.
The note further stated that the fear of catching virus lead to people stopping travelling to some extent which is enough to “bring economic slump and create ripples in the world economy as people change travelling, purchasing and trading patterns.” The potential for a pandemic has also revoked the memories of the Sudden Acute Respiratory Syndrome (SARS) outbreak in 2002-03 which resulted in 35 per cent drop in demand to 131,000 b/d in May 2003.
If this Coronavirus becomes as contagious as SARS 2003, it is estimated that global jet fuel demand will fall by 6,50,000-7,00,000 bpd for about 6 months. The next three weeks are crucial as it is still not turned into an epidemic, Motilal Oswal said. It further added that “once there is evidence that the outbreak is contained and thus the economic disruption is coming to an end, sentiment on oil should improve, bringing prices back up.”