By Isabel Wong
2020 has not been good to the oil market, at least not yet. The crude oil market had a less-than-stellar start to the year, and is currently hit by the uncertainties brought by the COVID-19 outbreak.
Factories in some of China’s manufacturing and export hubs might be slowly resuming operation, but the prolonged production halt after the Lunar New Year and reported splits in the Organisation of the Petroleum Exporting Countries (OPEC) have prompted a sharp drop in oil prices, while investors continue to fear the rapid spread of the coronavirus in several countries outside China will hit demand further.
Meanwhile, the world’s largest petroleum exporter Saudi Arabia is beginning to feel the heat. When asked about the impact of the coronavirus on oil, Saudi Energy Minister Prince Abdulaziz bin Salman has reportedly likened the situation to a blaze that needs the fire brigade. According to sources, the prince also said some would say that calling the fire brigade projects panic and it could damage the furniture, but doing so would simply be acting responsibly.
The statement came as plans for an emergency gathering between OPEC+ members in February faded away. Russia, the most important ally in the 23-nation coalition, has resisted the initiative, saying that more time is needed to assess the impact of the disease. OPEC has also revised its 2020 oil demand outlook earlier this month, citing China, the world’s leading oil importer, will depress global oil demand growth this year.
Chinese refiners have also slashed output by at least 1.5 million barrels a day in February, or over 10 percent, after the virus outbreak hit domestic fuel demand.
“We are looking at 20 to 25 percent, even up to 30 percent drop of demand on oil and gas in China, which in turn affects the oil spot market and the futures market”, a general manager of one of the largest petrochemical export companies spoke exclusively to Lynk about the impact on the oil and gas industry, “as many cities in China are under strict isolation policy and labours are not able to go back to work, most small and medium operations will be affected. The situation is expected to last until May or June, when the virus should be under control. We expect a bounce back starting from June”.
Experts also see sectors such as food and beverage and hospitality being some of the hardest hit businesses, while there is still a way to go until production in China is back in full force.
“The downstream market is currently almost not operating, and there is nearly no production going on. The demand of petrochemical products is facing a 50 to 60 percent drop,” said a director of liquefied products in a leading Chinese petrochemical company, “the government is imposing measures to limit logistics and it is a barrier for business. As a result, it lowers the productivity of some upstream factories. We expect there will not be much production going on for at least a month until mid-March”.
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