Wuhan virus to more severely affect oil market with prolonged containment

Wuhan virus to more severely affect oil market with prolonged containment

BAKU, Azerbaijan, Feb.22

By Leman Zeynalova – Trend:

Due to the overweight importance of Chinese demand on oil prices a prolonged epidemic in China is likely to pressure oil lower through the first half of 2020, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).

The scale of the impact of the 2019-nCoV epidemic on oil prices will be heavily influenced by the timeframe for containing the outbreak, as well as the shape and the magnitude of the Chinese government’s response, reads the report released by Fitch Solutions.

"Should the containment of the virus be over a prolonged period of time, if efforts to contain the virus fall short, the impact on demand could be far more severe. The fuels demand impact from the virus is likely to be most keenly felt by jet fuel, with air travel grinding slower as domestic routes in China and international routes are closed or limited. Likewise the impact on diesel markets has already been seen, with gasoil crack spreads having dropped to multi-year lows through the third week of January as markets factor in lower transport demand, alongside existing weakness from a mild northern hemisphere winter and lacklustre price support from IMO 2020," said the company.

Fitch Solutions believes that over the longer term, there is a risk to economic growth in China as services, business and consumption are hit by the ongoing disruption.

"Reduced travel over the lunar New Year holiday, the complete closure of public transport in several large cities and closure of a wide range of offices and business will all reduce headline fuels demand and weigh on GDP growth."

For jet fuel in particular, compared to 2003, China consumes approximately five times more of the fuel a year, with air travel having proliferated domestically and intra-regionally, said the company.

"China traveler numbers have boomed by almost 10 times over the same period. We see the risk of a greater impact on demand through the shutdown of this sector, particularly if the outbreak spreads more readily outside of the country as more countries ban or restrict flights into China," said Fitch Solutions.

For Chinese refined fuel consumption, the company forecasts a more modest rate of growth of 2.3 percent for 2020, slowing from an average annual growth of 5 percent seen over the past decade as China’s economy continues to reorient itself around less fuel-intensive and more consumer and service-driven segments.

"Within the fuels basket, we had flagged expectations for jet fuel to outperform, with diesel and gasoline showing weakness in the face of slumping passenger car sales, slowing economic growth, stricter emission rules and competition from alternative-fuel vehicles. However in light of the 2019-nCoV outbreak, we expect demand for air travel, both passenger and freight, to come under real pressure, weakening jet fuel demand and weighing on the overall growth story for refined fuel domestically," reads the report.

Fitch Solutions draws attention to the fact that the impact of the SARS outbreak in 2003 destroyed jet fuel demand growth in China through the year and had an impact on quarterly GDP through the second and third quarters.

"Whilst we do believe that the most recent 2019-nCoV outbreak will see demand for key transportation fuels reduced, we are cautious of using historical comparisons to quantify the impact of the current outbreak. Compared to 17 years ago, China now consumes more jet fuel as a proportion of the total fuels demand- around 6 percent as opposed to 4 percent back in 2003 - , likewise the impact on GDP will also be different due to the growth in the services and retail sectors since the previous SARS incident. Together this creates a series of unknown factors affecting headline demand. Importantly, the response by China suggests a more effective reaction to the outbreak than in previous iterations such as SARS in 2003."


Follow the author on Twitter: @Lyaman_Zeyn

Commission for Crimes in Karabakh to politically, legally assess Armenian aggression
Commission for Crimes in Karabakh to politically, legally assess Armenian aggression
Liberated lands of Azerbaijan already have good mobile signal - Russian 'Izvestia'
Liberated lands of Azerbaijan already have good mobile signal - Russian 'Izvestia'
Important to know where mines are on Azerbaijan's liberated lands - Lithuanian FM
Important to know where mines are on Azerbaijan's liberated lands - Lithuanian FM
Loading Bars
U.S. east coast to rely on petroleum inventories before main pipeline operation resumes
Austria, Georgia eye to implement projects in animal husbandry
WB to allocate Kyrgyzstan $ 20 mln to purchase coronavirus vaccines
Immunization with Sinovac in Georgia likely to begin in May
Iran-Pakistan border markets to be functional in few months
Cyberattack steals info of one million in Turkey’s Konya
Border police deployed in some Israeli cities amid Arab riots
Pipeline outage causes U.S. gasoline supply crunch, panic buying
Global renewable energy growth over 20 years peaks in 2020 - IEA
South Korea mulls commercial use of Northern Sea Route
Bahrain approves emergency use of Russia’s Sputnik Light vaccine — agency
Forum in New Zealand focuses on New Zealand-China economic cooperation, development opportunities
WHO head claims as global COVID cases drop to 630,000 per day
US Department of Energy retains forecast for Brent oil price at $62.3 per barrel in 2021
Samsung sees pandemic-led appliances boom extending run to rest of year
Next meeting on electoral reform to be held on May 14-16
Central Bank of Azerbaijan allocates funds to support financial literacy
Turkish State Mine Administration opens tender for rental of vehicles
Lending to electricity sector in Azerbaijan increases
Kazakh KazMunayTeniz to buy diesel fuel via tender
Iran's Petropars Company orders equipment from local manufacturers
Turkey reports over 14 400 COVID-19 cases
Some of children may be taken to Moscow for treatment after school shooting in Kazan
UN chief condemns Kazan school shooting
Gaza block collapses after Israeli strike, rocket hits Tel Aviv building
Kazakhstan supports solution of Palestinian-Israel conflict by peaceful means
Georgia likely to receive Novavax and Johnson & Johnson vaccines in July
Kazakhstan’s liquids production down in March - OPEC
COVID-19 cases decrease in 80 provinces in a week
Iran, Afghanistan discuss Afghan peace process
Israeli PM says to increase strikes against Gaza militants
Arab FMs kick off emergency meeting on Jerusalem tensions
Hamas and Israel step up attacks as Jerusalem unrest ignites Gaza
No need to evacuate people injured in Kazan school shooting to Moscow
Сompetition season of 2021 successfully started - European Gymnastics President
Identification of victims in Kazan school shooting completed
26 COVID-19 patients dead allegedly due to oxygen shortage in India's Goa
Japan's COVID-19 patients in "serious condition" hit fresh record high
Azerbaijani president, first lady express condolences to president of Tatarstan
President Aliyev expresses condolences to Russian counterpart
Iran's Energy Exchange announces products to be on sale on May 12
Bahar Azadi gold coin price continues to rise in Iran
Foreign investors waiting for decision related to FATF in Iran – official
Azerbaijani journalists view State Border Service's Military Hospital in liberated Gubadly (PHOTO)
Demand for OPEC crude in 2021 revised up
Turkish export of electrical goods to Azerbaijan drops
Shares of Kazakhstan's KAZ Minerals delisted from stock exchange
Export Development Bank of Iran to provide loans to startup companies
Data on cargo shipment through Turkish Kocaeli port over 1Q2021 revealed
Kazakhstan reports increase in new housing prices
Azerbaijan's ADIF continues compensating depositors of closed banks
Turkey sees increase in cement exports to Georgia
Cargo movements in Iran’s Shahid Rajaee port increase
OPEC marks increase in Baku-Tbilisi-Ceyhan oil exports
Guaranteed wheat purchasing from farmers in Iran continues
Iran to inaugurate new airport in Kurdistan Province
Iran to build new factory at Amirabad port
OPEC revises up forecasts for Azerbaijan’s liquids supplies in 2021
Azerbaijan reveals number of vaccinated citizens for May 11
Azerbaijan confirms 514 more COVID-19 cases, 1,306 recoveries
Iran reveals COVID-19 data for May 11
Iran’s PMO unveils volume of cargo transportation via Abadan Port
Iran shares unemployment data
Georgia export to Germany increased by 40%
Uzbekistan, Kyrgyzstan eye accelerating implementation of roadmap for industrial co-op
FDA to attract funds to support reforms in Uzbekistan
Uzbek-Chinese JV opens tender for spares for gas pumping units
Iran starts mass production of coronavirus vaccine
Russia boosts steel imports from Turkey
Volume of cargo shipment via Turkish Karabiga port in 1Q2021 revealed
Renewables to account for 90% of total global power capacity increases in 2021-2022
Annual renewable capacity additions reach highest level since 1999
Oil dips as pipeline outage fears ease, India weighs
First batch of Sputnik V vaccine arrived in Azerbaijan just a few days ago, more significant shipments expected later this month - Russian FM
Statements reeking of revanchism, are very dangerous, first of all for Armenian side - President Aliyev
Restriction on movement likely to ease in late May in Georgia
Since end of hostilities, we transferred all prisoners of war - President Aliyev
Azerbaijan shows goodwill in matters related to humanitarian issues - President Aliyev
Post-conflict situation, of course, dictates need for closer contacts at all levels - President Aliyev
Heroization of Nazism in all its forms - unacceptable - Azerbaijan FM
Gaza escalation weighs on shekel
Issue of unblocking transport in region must be prioritized - Azerbaijani FM
Humanitarian issues must be resolved as quickly as possible - Russian FM
Russian FM notes key factor in normalizing situation in Karabakh
Russia highly appreciates work of trilateral group of deputy prime ministers of three countries - Russian FM
Azerbaijan committed to fulfilling its obligations under trilateral agreement - Azerbaijani FM
Nine killed in Kazan school shooting
Second batch of Sputnik V vaccine to be delivered to Azerbaijan by late May - Russian FM
FMs of Azerbaijan, Russia sign plan of consultations for 2021-2022 (PHOTO)
Azerbaijan condemns all terror acts - Azerbaijani FM
Uzbekistan reveals number of vaccinated people
Uzbekistan considers attracting French companies to partake in state assets privatization
Uzbekistan signs memorandum of understanding with French Rothschild & Cie
Uzbekistan reveals numbers of companies with dominant position in market
Uzbekistan taking measures to improve availability of public services
Iran and India trade declines due to COVID-19
Azerbaijani president congratulates Azerbaijani people on Ramadan holiday
Armenian railways are owned by Russian railways, therefore, we are discussing issue mainly with Russian side - President Aliyev
Indian Army sets up 100-bedded hospitals in Faridabad, Chandigarh, Patiala
Indian FY22 growth may slip to 8.2%: Crisil
All news