BAKU, Azerbaijan, March 2
By Leman Zeynalova - Trend:
In oil, the recent downgrade of China’s GDP translates to approximately 500,000 barrels per day loss in demand for the first quarter of 2020, compared with the previous quarter based on the historical elasticity, Trend reports citing US JP Morgan bank.
“This would equate to a contraction of 1 percent year-on-year in China’s 1Q20 oil demand or 100,000 barrels per day,” JP Morgan said in its report.
The bank’s GDP estimates suggest a near 6 percent rebound in oil demand in 2Q20 y/y and modest improvements in 2H20. “We have already priced in such a shock to China's oil demand in our existing balances, and continue to note downside risks to this forecast.”
A bottom-up scenario that estimates the shock to oil demand based on the duration of factory shutdowns and travel disruptions, such as flight and highway traffic data, suggests a 0.7 mbd decline in Chinese oil demand in 1Q20 y/y or a loss of 1.1 mbd compared with 4Q19—a significantly larger impact than that implied by our GDP and IP projections, according to JP Morgan.
The report shows that the same bottom-up approach suggests a more conservative 2Q20/or balance of the year recovery (2.6 percent y/y increase) compared with GDP-linked forecasts as the catch-up demand from spare industrial capacity in unlikely to fully offset declines from a more gradual recovery in jet fuel, diesel and gasoline demand.
“Additionally, the human impact of the health crisis is likely to curb domestic disposable spending for a longer duration.”
After recovering about a third of the January COVID-19 losses over the first three weeks of February, commodities markets were freshly roiled again this week as cases outside of China began to escalate, the bank says.
“Our short-term price momentum indicators suggest downside price risk of a further 5 percent from current spot levels for Brent and 17.5 percent for copper,” reads the report. “Looking into the spring, we expect that the virus seasonality and the postvirus bounce in global activity will drive a recovery in cyclical assets. As a result, we reiterate our neutral view on commodity markets for the time being.”
Follow the author on Twitter: @Lyaman_Zeyn