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How Coronavirus would affect crude oil demand negatively 

Fakoyejo Olalekan by Fakoyejo Olalekan
January 27, 2020
in Business News
Oil prices
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The demand for crude oil might be significantly affected by the coronavirus, which recently broke out in China. The disease, which has gradually been spreading from the Asian country to the United States and United Kingdom, could result to a fall of 260,000 crude oil barrels per day.

The new projection and warning came from the Senior Commodity Strategist at Goldman Sachs, Damien Courvalin. The impact is linked to the jet fuel market as air travelling from Asia might reduce due to the coronavirus.

Coronavirus projected to affect crude oil demand negatively 
Coronavirus

“Ultimately we expect jet fuel markets — including cracks, regrade and Asian differentials — to decline most if this outbreak persists given the likely decline in regional air travel,” Courvalin said.

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Some analysts disagree with Goldman: While Goldman Sachs believes the drop will be as projected, other analyst at Energy Aspects, a London-based consultancy firm, think the fall in crude oil will not be significant. Their reason was due to countries not taking the same action taken during the SARS crisis in 2002-2003. Countries at that time were compelled to issue restrictions on travel and trade.

“While the SARS outbreak was estimated to have impacted up to 0.26 mbpd of oil demand globally, according to anecdotal reports, we currently do not expect global oil demand to fall significantly as a result of the coronavirus,” Energy Aspects said in a research note.

Voluntary trip cancellation expected: Energy Aspects might not expect huge impact on the crude oil market but it didn’t rule out the possibility that some countries might cancel air trips voluntarily even though the disease has largely been in China, with minor cases reported in US and UK.

[READ MORE: Crude Oil: Nigeria’s oil production slips for the third consecutive month)

“The World Health Organisation is currently hesitant to declare the coronavirus a public health emergency, meaning airline cancellations remain unlikely.” So, the coronavirus might not negatively impact jet fuel as projected in some quarters.

What’s the worst-case scenario? Despite not fully backing a significant impact on transportation fuel, Energy Aspects said jet fuel demand growth could slow to 20,000 bpd year-on-year if China takes more aggressive approach in curbing the disease.

Nigeria's crude oil production, Crude Oil: Nigeria's volatile oil sector and economic progress   

According to the firm in a report by Punch, “In a worst-case scenario that assumes the outbreak spreads across the nation, we expect jet demand growth to slow to 20,000 bpd year-on-year after having grown by 75 thousand bpd year-on-year in H2 2019.”

Countries’ coronavirus currently affects: Apart from the US and the UK, two more countries in the Asian continent, Japan and South Korea have been battling with the virus which came from China’s Wuhan, a capital with 11 million people. Already, 17 deaths and 582 cases have been confirmed, leading to the shutdown on Wuhan and some other cities by the Chinese government.


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Tags: Coronaviruscrude oil demandDamien CourvalinEnergy AspectsGoldman Sachs
Fakoyejo Olalekan

Fakoyejo Olalekan

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: fakoyejo.olalekan@nairametrics.com.

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