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Oil market to be in surplus in Q1 2020 due to coronavirus

Oil&Gas Materials 13 February 2020 11:34 (UTC +04:00)
Oil market to be in surplus in Q1 2020 due to coronavirus

BAKU, Azerbaijan, Feb.13

By Leman Zeynalova – Trend:

Oil market is expected to be in surplus, rather than deficit forecasted for the first quarter (Q1) of 2020, Trend reports with reference to UK-based Capital Economics.

“The economic disruption caused by the coronavirus means that we now expect the oil market to be in a surplus in Q1 2020, as opposed to the deficit that we had previously envisioned. However, providing that the virus is contained, we think that demand will recover in the following quarters and, in conjunction with weak supply growth, will lead to a market deficit in the remainder of this year,” the company said in its analysis.

The outbreak in the Chinese city of Wuhan - which is an international transport hub - began at a fish market in late December 2019. Since then over 1,000 people have died and over 45,000 people have been confirmed as infected.

Some sources claim the coronavirus (or COVID-19) outbreak started as early as November 2019.

Aside from Mainland China, the cases of coronavirus spreading have also been confirmed in Japan, Singapore, Thailand, South Korea, Hong Kong, Australia, Germany, the US, Malaysia, Taiwan, Vietnam, Macau, France, Canada, the UAE, India, Italy, Russia, Philippines, the UK, Nepal, Cambodia, Belgium, Spain, Finland, Sweden and Sri Lanka.

The outbreak of the virus has weighed heavily on Chinese economic activity and oil demand, according to Capital Economics. “For now, we are assuming that China’s crude oil consumption will fall by around 10 percent year-on-year in the first quarter and that demand growth will be relatively soft in countries with close economic links to China.”

Additionally, the introduction of new maritime fuel regulations (IMO 2020) should still provide a structural boost to distillate and, in turn, crude demand too, the company believes.

“We previously estimated that IMO 2020 would increase crude demand by around 0.9m bpd in 2020. This boost may be slightly less now as the virus has led to the closure of Chinese shipyards and ports and has lowered trade volumes, but the impact of IMO 2020 will still be significant.”

Altogether, Capital Economics now estimates that global oil consumption growth will rise by 0.7 million barrels per day in 2020 (previously 1.1 million ) to 100.8 million. “However, we stress that the risks are to the downside as the economic fallout of the virus could start to affect European and US oil consumption.”

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Follow the author on Twitter:@Lyaman_Zeyn

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