Why oil rebounded last week despite coronavirus doom

Why oil rebounded last week despite coronavirus doom

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Last week proved once more that markets often react on sentiment and perceived outlook rather than to cold, hard facts.

The coronavirus outbreak severely impacted oil demand, a situation underlined by forecasts released last week by both the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).

The IEA downgraded its demand predictions for this year by 365,000 barrels per day (bpd) to 825,000 bpd, the lowest since 2011. It even expected oil demand to fall by 435,000 bpd during the first quarter of 2020.

OPEC’s downward revisions were less hefty. The organization predicted oil demand to grow by 990,000 bpd in 2020, which included a downward revision of 230,000 bpd.

The two reports were published amidst negative news of the coronavirus. Its impact on Chinese oil demand has been severe, reducing the run rates of refineries by as much as 3 million bpd. The impact of the virus will take 1.1 million bpd out of the market during the first quarter of this year and 344,000 bpd during the second in China – all according to the IEA.

The situation has become so grave that several suppliers are willing to discount the oil price for their eastbound cargo in order to retain market share. According to S&P Global, this mainly affected Brazil, Russia and Angola.

These numbers make sense when looking at the impact the spread of coronavirus has had on global supply chains, especially in the automotive and technology sectors. Hyundai closed factories in Korea, and Chrysler Fiat in Serbia. General Motors is worried about its production lines in the US and several factories in the UK have shortened their hours due to a lack of parts.

Apple has been particularly impacted, with several of its factories in China manufacturing parts or assembling iPhones having been slow to reopen after the lunar new year — if at all.

The outlook on the global economy is bleak. In January the International Monetary Fund (IMF) downgraded global economic growth for 2020 by 0.1 percent to 3.3 percent. That was before worries about the coronavirus emerged.

On Sunday the IMF’s managing director, Kristalina Georgieva, floated a further reduction in the growth rate by 0.1 – 0.2 percentage points. At the same time, she warned about making hasty predictions, because too little was known at this point about how the virus would develop.

Depending how the economic impact of the coronavirus unfolds, the 600,000 bpd might well do the trick and balance markets.

Cornelia Meyer

The impact of the virus is twofold, one lasting and the other one resulting in a rebound after the worst is over. The former is the loss in consumption, travel and tourism during the Chinese lunar new year, constituting a one-time hit, which cannot be recovered.

The second effect is the loss of production in the global supply chain. Industry will, over time, make up for the backlog that creates. Down the line it will probably even result in greater-than-expected demand for oil – the premier fuel for transport – because shipments will resume, and factories will need to compensate for the backlog.

So why then was there a hike in the oil price while the short-term outlook was so bleak? The development ran against what was seen in most other commodities, especially copper. Brent was up by more than $3.60 per barrel or close to 7 percent on the week. The price has dropped a little bit since then, reaching $57.39 per barrel for Brent in early Asian trading on Monday.

The answer is simple. While the short-term outlook is negative, analysts and traders pin great hopes on the upcoming meeting of OPEC+, a grouping of the OPEC member countries and their 10 allies lead by Russia.

Ministers will gather in Vienna on March 5 and 6 and most analysts expect them to follow the recommendations of a technical meeting held earlier this month, which stipulated that the grouping should cut production by an additional 600,000 bpd. That would go beyond the 1.7 million bpd by which OPEC+ reduced production in December of last year. The full 2.3 million bpd should remain off the market until June, when another meeting is scheduled.

Depending how the economic impact of the coronavirus unfolds, the 600,000 bpd might well do the trick and balance markets. There are, however, other factors that could influence developments.

For one, political and internal tensions in Libya have grinded to a halt the country’s oil exports. If the Berlin process achieves its desired results later this quarter, Libyan production, and with it exports, could resume adding to the supply glut.

Secondly, analysts will observe how OPEC+ interacts in March. Saudi Arabia wanted to bring the March meeting forward, but Russia denied the urgency. Russia has so far, many times talked tough ahead of OPEC+ meetings. In the end Moscow relented and consented to play its part in doing what was required to balance markets.

The odds are that the March meeting will be no different and that is clearly what traders anticipate. Should that not be the case, expect the price of oil to slide after March 6.

• Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

China reports 1,886 new virus cases, death toll up by 98

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A woman, wearing a protective facemask amid fears over the spread of the COVID-19 coronavirus, walks in front of an advertisement board in Bangkok on February 17, 2020 featuring attractions in Thailand. (AFP)
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This undated electron microscope image made available by the U.S. National Institutes of Health in February 2020 shows the Novel Coronavirus SARS-CoV-2, orange, emerging from the surface of cells, green, cultured in the lab. Also known as 2019-nCoV, the virus causes COVID-19. (AP)
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An Indonesian student (R) hugs a mother as she arrives after being quarantined following the novel COVID-19 coronavirus outbreak, at Sultan Iskandar Muda International Airport in Blang Bintang, Aceh province on February 17, 2020. (AFP)
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People wearing protective face masks cross a street in Tokyo, Monday, Feb. 17, 2020. (AP)
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A handout photo from Fresh News shows passengers, who disembark from the Westerdam cruise ship in Sihanoukville, sitting on a bus for a visit of the capital Phnom Penh on February 17, 2020. (AFP)
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Updated 18 February 2020

China reports 1,886 new virus cases, death toll up by 98

  • Hundreds more have been infected and the virus has sparked panic buying, economic jitters as well as the cancellation of high-profile sporting and cultural events

BEIJING: China reported 1,886 new virus cases and 98 more deaths in its update Tuesday on a disease outbreak that has caused milder illness in most people, an assessment that promoted guarded optimism from global health authorities.
The update raised the number of deaths in mainland China to 1,868 and the total confirmed cases to 72,436.
On Monday, the Chinese Center for Disease Control and Prevention published a study of earlier cases of the disease, finding more than 80 percent of people infected had mild illness and the number of new infections seem to be falling since early this month.
Monday’s report gives the World Health Organization a clearer picture of where the outbreak is headed, WHO Director-General Tedros Adhanom Ghebreyesus said at a news conference.
But he added it was too early to know if the reported decline would continue. “Every scenario is still on the table,” he said.
The seeming drop in the number of cases follow a large spike last week after hard-hit Hubei province began counting cases by doctors’ diagnoses without waiting for laboratory test results. Health authorities there said the change was meant to get patients treated faster.
The disease named COVID-19 emerged in December in Wuhan, Hubei’s capital, and the surrounding region has been put under lockdown to try to contain the outbreak. Transportation has been halted, thousands of hospital beds have been added, and military doctors and nurses have been deployed to staff facilities in the overwhelmed local health-care system.


This section contains relevant reference points, placed in (Opinion field)

China may postpone its annual congress in March, its biggest political meeting of the year. The standing committee for the National People’s Congress will meet Feb. 24 to deliberate postponing the meeting that is due to start March 5.
China’s annual auto show, one of the industry’s biggest international events, has been postponed, and many sports and entertainment events have been delayed or canceled to avoid travel that may spread the virus.
The Chinese CDC’s study examined 44,672 cases of the disease that were confirmed in China as of Feb. 11. Severe symptoms such as pneumonia occurred in 14 percent of them and critical illness in 5 percent. The fatality rate was 2.3 percent — 2.8 percent for males versus 1.7 percent for females.
The death rate is lower than for SARS and MERS, diseases caused by coronaviruses related to the one that causes COVID-19. But the new virus ultimately could prove more deadly if it spreads to far more people than the others did. Ordinary flu has a fatality rate of 0.1 percent yet kills hundreds of thousands because it infects millions each year.
The COVID-19 cases include relatively few children, and the risk of death rises with age. It’s higher among those with other health problems — more than 10 percent for those with heart disease, for example, and higher among those in Hubei province versus elsewhere in China.
The study warned that while cases seem to have been declining since Feb. 1, that could change as people return to work and school after the Lunar New Year holidays. Beijing sought to forestall that by extending the holiday break, restricting travel and demanding 14-day self-quarantines for anyone returning from outside their immediate region.
Travel to and from the worst-hit central China region was associated with the initial cases of COVID-19 confirmed abroad. But Japan, Singapore and South Korea have identified new cases without clear ties to China or previously known patients, raising concern of the virus spreading locally.
The largest number of cases outside China is among passengers and crew of the Diamond Princess cruise ship quarantined at a port near Tokyo. The Japanese Health Ministry has tested 1,723 people among the 3,700 initially on board, and 454 have tested positive.
The US evacuated 338 American passengers, with most of them placed in a 14-day quarantine at military bases in California and Texas. Thirteen who tested positive for the virus were taken to hospitals in California and Nebraska.
Any quarantined passengers who shows symptoms of infection will be taken to a hospital off the base “for containment and specialized care,” according to a statement from Centers for Disease Control and Prevention spokesman Scott Pauley. The CDC rather than the Department of Defense is responsible for all parts of the quarantine operation.

Albania’s coronavirus cases surge for third day in row

Updated 05 April 2020

Albania’s coronavirus cases surge for third day in row

  • The country reported a total of 361 cases, 20 deaths and 104 recoveries
  • Albania was hit by an earthquake last November that killed 51 people and left 17,000 homeless

TIRANA: Albania reported 28 new cases of the new coronavirus on Sunday and said a failure to respect social distancing had led to the highest numbers of infections over the last three days.
The COVID-19 disease caused by the coronavirus has killed 20, infected 361 and caused three to need help breathing, the Public Health Institute said. It added that 104 had recovered.
Despite a lockdown monitored by police and the army and hefty fines, some Albanians have slipped through to buy food. Two were caught having coffee and brandy outside. Mourners who attended a funeral in a northern town also spread the contagion.
Since the first two cases on March 9, infections rose and fell until they reached 28, the most in a day, on March 26. They fell up to half over the next week, only to rise to 27 on Friday, 29 on Saturday, the highest ever, and 28 on Sunday.
One of the poorest countries in Europe, Albania was already hit hard by an earthquake last November that killed 51 people and left 17,000 homeless. The government is enforcing a tough lockdown to prevent the health system from being overwhelmed.
Before enforcing its third 40-hour lockdown on the weekend, the government reminded Albanians they should not be fooled by comparing their country’s figures with those of worst-hit countries because the worst had yet to pass.
“This increase in the number of cases in Shkoder and Tirana once again shows the failure to apply social distancing and measures to control the infection that the Health Ministry keeps recommending daily,” said Albana Fico of the Health Institute.
“It is equally important to respect infection prevention measures even with our cousins by avoiding visits for whatever reason,” she added.