BAKU, Azerbaijan, Feb.5
By Leman Zeynalova – Trend:
China’s waning demand for oil amid coronavirus will also negatively impact its major crude oil suppliers, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).
“Crude flows to China are already being impacted in the wake of recent events, with sales of Latin American cargoes for March loading reportedly grinding to a halt, while those from West Africa also remain largely unsold. The national crude mix could be due for further changes, were conditions prescribed under the US-China ‘phase one’ trade deal to be met in full. In our view, this would replace comparable crude barrels from Africa, Europe and Middle East at most risk of being displaced,” Fitch Solutions said in its outlook for China’s oil demand.
Chinese fuel demand is anticipated to slow to 2.3 percent this year, from 7 percent in 2019, due to the effects of slower economic growth and dimming prospects in industry and manufacturing, reads the report.
“The short-term outlook has darkened further, particularly in the wake of the recent coronavirus outbreak. The disease is set to drag on Chinese demand for jet fuel, gasoline and diesel, and in turn, put the brakes on domestic refining activity. Reports are already surfacing of refiners cutting their run rates, with cuts likely to deepen in February. Efforts aimed at containment including airport closures, flight cancellations to and from China, alongside heightened aversion to travel, are already starting to drag on jet fuel demand,” said the company.
Moreover, extension of holidays, coupled with ongoing efforts to curb the disease spread, including retail services closures, are also reducing traffic flows and freight movements, weighing on fuel consumption in transport, according to Fitch Solutions.
China’s overall appetite for crude oil imports also appear precarious, as domestic demand tails off.
“China’s crude imports capped off a yet another record setting year in 2019, coming in at 505.9 million tonnes (10.2 million b/d), equivalent to an increase of 9 percent y-o-y. However, this pace is likely to be hard to be maintained in 2020, due to the host of bearish factors as aforementioned. Depending on the time it would take to contain the outbreak, as well as the shape and magnitude of government actions that would be required, we do not rule out further downsides to our forecasts for 2020 and potentially beyond,” said the report.
This also supports our similarly lacklustre outlook for Chinese fuel demand over the longer-term, in which we forecast demand growth to slow to an average of 1-2 percent in the period out to 2029, down from 5 percent seen over the past 10 years, according to Fitch Solutions.
The company expects that the effects of slowing Chinese demand growth on both global oil prices and China’s existing group of crude suppliers will be bearish.
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