Global demand for oil is set to post its first contraction for more than a decade in the first quarter of the year thanks to the impact of the coronavirus, according to the International Energy Agency.
The consequences of the virus, now officially name Covid-19, for global oil demand will be “significant”, the IEA said in its monthly report on Friday, forecasting that demand would contract by 435,000 barrels a day (b/d) to 98.8 million b/d.
This would be the first fall since the autumn of 2009, when the world was in the grip of a global recession. “Global oil demand has been hit hard by Covid-19 and the widespread shutdown of China’s economy,” the IEA said.
For 2020 as a whole the IEA, which is an inter-governmental thinktank of OECD countries, has reduced its forecast of global growth demand by 365,000 b/d to 825,000 b/d, the lowest annual increase since 2011.
It has also cut its outlook for the second quarter of the year by around 345,000 b/d but believes that demand will return to its trend rate in the third quarter.
A driving factor is the impact on air transport within and from China, the epicentre of Covid-19. The ministry of transport data showed that in the first 20 days of the Spring Festival travel rush, which started on 10 January, civil aviation transported 14.4 per cent fewer passengers on average than last year with a trough of a 74.5 per cent hit on 28 January.
By applying the impact on demand for fuel in the wake of the SARS outbreak in 2003, the IEA has cut its forecast for Chinese jet fuel demand by 125,000 b/d in the current quarter and 140,000 b/d in the three months to June.
Oil demand will also be reduced by lower economic activity. The decision to put the city of Wuhan, which is at a crossroads of cross-country links into quarantine, will curb fuel demand.
Several economic centres, including Shandong, Shanghai, Jiangsu, Zhejiang and Chongqing, have extended holidays by at least two weeks and many migrants are waiting for an end to the epidemic before returning to work.Chinese tourists are the most numerous in the world and countries with large numbers of visitors will be particularly impacted, affecting both air travel and tourism activities.
However, the IEA warned that it was difficult to make estimates as China’s role in the global economy had increased substantially in the 17 years since SARS.
“Today, it is central to global supply chains and there has been an enormous increase in travel to and from the country, thus heightening the risk of the virus spreading,” the IEA said.
“In 2003, China’s oil demand was 5.7 million b/d and by 2019 it had more than doubled to 13.7 million b/d — 14% of the global total. Moreover, last year China accounted for more than three-quarters of global oil demand growth.”
Meanwhile stock markets suffered a fresh fall after the death toll from the coronavirus outbreak in mainland China rose to 1,367 as of the end of Wednesday, up 254 from the previous day. This dented hopes that the virus had peaked.
The Stoxx 600 index of EU-listed companies and the FTSE-100 both lost ground while the euro fell to a 33-month low of $1.086 against the US dollar.