Opinion

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

88 more people test positive for coronavirus on ship off Japan

Japan has faced criticism for its handling of the situation, with dozens of new infections detected almost daily since the ship arrived in early February. (File/AFP)
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Updated 18 February 2020

88 more people test positive for coronavirus on ship off Japan

  • South Korea became the latest to announce it would remove its citizens from the Diamond Princess
  • Early Monday, more than 300 Americans were evacuated from the ship, among them over a dozen who have tested positive for the virus

TOKYO: An additional 88 people have tested positive for coronavirus on a quarantined cruise ship off the Japan coast, the health ministry said Tuesday.

The new cases came from a total of 681 fresh results, the ministry said, taking the total number of positive cases on the Diamond Princess to 542.

All passengers and crew on board a ship quarantined off Japan have now been tested for the new coronavirus, the government said, as more countries moved to evacuate citizens from the boat.

South Korea became the latest to announce it would remove its citizens from the Diamond Princess, where more than 400 people have tested positive for COVID-19.

Japan has faced criticism for its handling of the situation, with dozens of new infections detected almost daily since the ship arrived in early February.

But it has defended its approach and health minister Katsunobu Kato insisted again Tuesday that passengers who test negative will be allowed to leave the ship from Wednesday.

“We have done tests for everyone (on the ship),” he told reporters.

“Some results have already come out... and for those whose test results are already clear, we are working to prepare disembarkation from the 19th,” he said.

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Kato said the process would last two or three days. But those who had close contact with people who have tested positive will have their quarantine reset to the date of their last contact with an infected person.

Crew are also expected to remain to observe another quarantine period after the last passengers leave the ship.
So far, the United States, Canada, Australia, Hong Kong and now South Korea have said they will evacuate their citizens from the ship.

South Korea will send a presidential aircraft on Tuesday to fly back four nationals and one Japanese spouse, an official told reporters.
There are 14 South Koreans on board in total, but the other ten have declined to be evacuated from the ship because they live in Japan, the Yonhap news agency reported.

Early Monday, more than 300 Americans were evacuated from the ship, among them over a dozen who have tested positive for the virus.

The Americans, like citizens from other countries being evacuated from ship, will have to undergo another 14-day quarantine.

Canada said Tuesday it had “secured a chartered flight to repatriate Canadians on board the Diamond Princess” but gave no details on when the process would take place.

There were 256 Canadians on board the ship, with 32 so far testing positive for the virus.

While foreign governments have couched their decision to remove citizens as an attempt to reduce the burden on Japanese authorities, many have interpreted the evacuations as criticism of Tokyo’s handling of the situation.

The US and Australia have told citizens that if they decline repatriation and an additional 14-day quarantine, they will not be allowed home for at least two weeks, suggesting they do not believe the ship-based quarantine has worked.

Japan has also confirmed at least 65 cases domestically, including many involving people with no history of recent travel to China.

Authorities have said the virus is being transmitted locally now, and have asked citizens to avoid crowds and non-essential gatherings.

On Monday, the amateur portion of the Tokyo Marathon, which had been expected to attract some 38,000 runners, was canceled. Only elite athletes will now be able to take part.

The public celebration for Emperor Naruhito’s birthday has also been scrapped over virus fears.

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Military promises Pakistani doctors gear to fight virus

Updated 58 min 15 sec ago

Military promises Pakistani doctors gear to fight virus

  • Some of the doctors said they were mistreated by police and that some of their colleagues were beaten
  • The health ministry’s spokesman, Kianoush Jahanpour, said 27,039 people have recovered so far while 3,987 remain in critical condition

QUETTA, Pakistan: Pakistan’s military promised Tuesday that dozens of doctors who were briefly jailed for protesting a lack of protective equipment needed to treat the growing number of coronavirus cases will get the equipment they need.
The 47 doctors protested in Quetta, the capital of southwestern Baluchistan province, on Monday, when they were detained. They were released later the same day, according to provincial spokesman Liaquat Shahwani.
An army statement on Tuesday said the “emergency supplies of medical equipment, including PPE (Personal Protective Equipment) are being dispatched to Quetta.”
However, some of the doctors said they were mistreated by police and that some of their colleagues were beaten. The physicians declined to give their names, fearing reprisals.
Two doctors have died after contracting the new virus in Pakistan, which has recorded 4,004 cases and 54 deaths. Many of the cases have been traced to pilgrims returning from neighboring Iran. Pakistani authorities have imposed a countrywide lockdown until April 14.
In Iran, authorities struggling to battle the virus announced Tuesday they would expand testing to asymptomatic people, but didn’t say how many test kits they have available or provide other details.
Iran’s Health Minister Saeed Namaki said that with active screening of such cases, there are expectations the virus and COVID-19, the illness it causes, can be brought under control by mid-May.
“With this step, we will go after people without symptoms,” said Namaki, adding this would require a large number of tests. He didn’t elaborate. The health ministry said searching for asymptomatic cases would be combined with restrictions on both city and intercity travel and quarantine.
Iran is facing the worst outbreak in the region. Iran’s state TV said Tuesday the new coronavirus has killed another 133 people, pushing the country’s death toll to 3,872 amid 62,589 confirmed cases.
The health ministry’s spokesman, Kianoush Jahanpour, said 27,039 people have recovered so far while 3,987 remain in critical condition.
There are nearly 109,000 confirmed cases across the Middle East, with more than 4,600 fatalities.
In Egypt, the Ministry of Religious Endowments, which oversees mosques nationwide, called off all celebrations and late-evening prayer services for Ramadan, the holiest month of the Islamic calendar. The holiday, when devout Muslims fast from sunrise to sunset, begins April 23. Mosques and churches have already closed for prayer to curb the spread of the virus in the Arab world’s most populous country. There is also a nightly curfew but the government has resisted a harsher lockdown.
President Abdel Fattah El-Sisi on Tuesday sought to reassure the jittery public a day after officials reported 149 new infections, bringing the case count to 1,320 and 85 fatalities in the biggest single-day jump so far.
“So far, the situation is under control,” he said in televised comments. “The goal is to minimize the damage caused by the pandemic.”
The Egyptian military, at the forefront of the country’s fight against the virus, said it set up four field hospitals with more than 500 beds to help treat virus patients.
For most people, the new coronavirus causes mild to moderate symptoms such as fever and cough. But for some, especially older adults and the infirm, it can cause pneumonia and lead to death.
At a retirement home ravaged by the coronavirus in the southern Israeli city of Beersheba, another resident died, the eighth so far there. Dozens of the home’s resident’s have been infected and relatives have been staging angry protests outside the premises in recent days.
Overall, more than 9,000 have been infected in Israel and 60 have died, the vast majority elderly and many in assisted living facilities.