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International News

GLOBAL LNG-ASIAN SPOT PRICES EDGE HIGHER AS SUPPLY TIGHTENS

Prices of Asian spot liquefied natural gas (LNG) edged up this week as supply for cargoes to be delivered in April tightened, but traders expected prices to remain low for a while as demand continued to be weak amid the coronavirus outbreak.

The average LNG price for April delivery into northeast Asia LNG-AS is estimated at about $3.20 per million British thermal units (mmBtu), 20 cents higher from the previous week, but still near record low prices, several traders said.

Prices for cargoes delivered in May are estimated to be at the same level as April, they added.

“Supply for April has more or less dried up as U.S. cargoes are unable to make it to Asia,” a Singapore-based trader said.

Low spot prices was also attracting buying interest from South Korean and Indian firms, traders added.

Still, market sentiment was bearish after PetroChina declared force majeure on natural gas imports including on piped gas and LNG, sources said this week.

PetroChina meets 40% of its total gas needs through imports and about 70% of imports are through piped gas from central Asia, Myanmar and Russia, while the rest are through LNG, one of the sources said.

“The supply cuts will fall on suppliers proportionately but LNG suppliers will have a lesser impact versus those on piped gas,” said one of the sources with direct knowledge of the situation.

It was not immediately clear what volumes PetroChina had declared force majeure on or the time period the notice covers.

“China has been hit with a double whammy of industrial slowdown and also the end of the heating season, so this is going to bring the demand down for gas sharply,” a trading source said.

Still, the low spot price attracted buying interest from South Korea and India, as well as a buyer in China.

China’s Guangzhou Gas is seeking two cargoes for delivery over second-half of April and first half of May, while India’s GSPC was seeking six cargoes for delivery over March to November through two separate tenders, sources said.

South Korea’s POSCO bought a cargo at about $3.20 per mmBtu, industry sources said.

Meanwhile, price agency S&P Global Platts said on Thursday it had facilitated a first trade for the Japan-Korea-Marker (JKM) derivatives in its pricing process also known as market-on-close (MOC).

CHINA’S JAN-FEB CRUDE IMPORTS STEADY DESPITE CORONAVIRUS DISRUPTIONS

China’s crude oil imports posted a 3.4% year-on-year growth for January and February, despite shrinking oil demand and refinery throughput levels amid the coronavirus outbreak that has wrecked havoc on the country’s economic activity.

Chinese importers remain pessimistic about a recovery in oil demand and slowing purchases by refiners mean that official import data is likely to begin reflecting the impact of the coronavirus from March onwards.

China’s crude oil imports averaged 10.52 million b/d for the January-February months, compared with an average of 10.16 million b/d over 2019 and 10.76 million b/d in December 2019, preliminary data from General Administration of Customs, or GAC, showed Saturday.

It did not publish separate data for January and reported combined data for January and February.

China’s crude imports in January-February amounted to a growth of 3.4% year-on-year, which is a deceleration from the 12.4% increase in the same period in 2019, official data showed.

The slower growth can be attributed to the sharp increase in new refining capacity last year, and an expected moderation in China’s oil import growth as demand saturates.

In January-February 2019, Chinese refiners had lifted crude feedstock deliveries significantly by around 900,000 b/d as new capacity kicked in.

GAC releases data in metric tons, which S&P Global Platts converts to barrels using a 7.33 conversion factor.

The country’s crude imports in January-February totaled 86.09 million mt, 5.2% higher than the 81.83 million mt in the some period of 2019.

CHINA’S OIL IMPORTS TO SLOW

Chinese refiners continue to pull back on throughput levels and crude purchases.

China’s total refinery throughput slumped by around 3.3 million b/d in February from January to just over 10 million b/d, an S&P Global Platts survey showed in late-February.

That’s close to a 25% month-on-month decline.

Several Sinopec refiners said on Friday that they had no confirmed throughput plan for the second quarter and had not started shopping for June deliveries yet.

They would typically have June purchases well planned out by late February/early March, but their scheduling has been complicated by the spread of the coronavirus outside China, to over 80 countries this week.

“I don’t see a significant recovery in oil and petrochemical product demand soon as the coronavirus spreads widely overseas now, which will have an impact on overseas demand for Chinese goods,” a Sinopec refiner said.

In coming months, China will require more flexibility on when to get crude delivery due to uncertainties of demand recovery, a Beijing-based analyst said.

Meanwhile, within China, quarantine measures have been tightened across administrative regions, causing logistical bottlenecks in road transportation and port discharges, a Shandong-based refiner said.

CHINA’S PRODUCT EXPORTS

China exported 10.75 million mt of oil products in January-February, slowing to a year-on-year growth of 16.6% from 21.3% in 2019, GAC data showed.

Export growth shrunk due to China’s refining throughput cuts in February and fixed export plans that capped outflow despite a sharp drop in domestic product demand.

Traders and analysts expect China’s oil product exports to hit record highs in March as demand struggles to recover and product stocks remain high despite refineries cutting production of jet fuel and gasoline production.

“China’s gasoline exports can exceed 2 million mt in March based on the loading program so far this month,” a Singapore-based trader said. China’s gasoline exports last hit a record high of 1.84 million mt in November 2019.

“We have cut our jet fuel production from 70,000 mt/month to 20,000 mt/month, but the stock remains high as the barrels have nowhere to go. The gasoil yield is higher this month for more exports as a result of cutting the jet fuel yield” a Sinopec refiner said.

Gasoil exports last hit record high of 2.71 million mt in March 2019, while jet fuel was at 1.91 million mt in December last year.

S&P Global Platts Analytics estimated China’s total oil demand will fall 10% year-on-year in the first quarter of 2020.

Source: Hellenic Shipping

OPEC+ OIL-DEAL FAILURE MAY LEAD TO $30 OIL

An effort by the Organization of the Petroleum Exporting Countries to stabilize the oil market ended in failure on Friday, with Russia rejecting a plan for addition output cuts and sending prices for the commodity plummeting to their lowest levels in roughly three years.

Analysts said Russia may be betting that the lower prices will cause U.S. shale producers to slow output, but without OPEC+’s help to steady the market, U.S. benchmark prices could fall toward $30 a barrel as COVID-19 feeds a decline in demand for oil.

“Today’s outcome is psychological blow for the market, as the steep plunge in oil prices shows,” said Ann-Louise Hittle, vice president of macro oils at Wood Mackenzie, in emailed commentary Friday. “And the market is now facing the spectre of unrestrained production once the current OPEC+ agreement expires in March.”

OPEC on Thursday had proposed an additional output cut of 1.5 million barrels to the end of the year, under which OPEC members cutting 1 million barrels a day and Russia and other allied non-members responsible for a reduction of 500,000 barrels a day.

The talks ended without an agreement. Russian Energy Minister Alexander Novak said there is no more oil output deal between Russia, its allies and members of OPEC, according to a report from Reuters. He said that from April 1 and onward, Russia “nor any OPEC or non-OPEC country is required to make output cuts,” the report said.

The current OPEC+ agreement calls for a reduction of 1.7 million barrels, from an October 2018 baseline, through the end of March of this year. OPEC had also recommended extending that pact to the end of the year.

The failure to come to an agreement “represents the worst case scenario that could have happened,” said Manish Raj, chief financial officer at Velandera Energy. “The breakdown was a classic game theory outcome—each side stands to gain if the other side backs down. However, if neither side backs down, then they both lose.”

Raj said “Russia is certainly betting that price crash will cause U.S. production to crash, helping restore its dominance,” but that bet did not pan out well in 2014, when OPEC and Russia decided to defend market share instead of defending prices, “and only made the US producers more efficient thereafter.”

Total U.S. oil production climbed to a record 13.1 million barrels a day for the week ended Feb. 28, according to the Energy Information Administration.

Attack on U.S. shale?

U.S. shale oil and natural-gas drillers were under severe financial pressure even before the recent selloff in oil prices, said Ryan Fitzmaurice, commodities strategist at Rabobank. “Share prices across the exploration and production sector currently sit at or near all-time lows as a result of high debt levels, lack of free cash flow generation, and extremely poor investor sentiment with respect to the energy sector.”

Fitzmaurice said that Russia may be willing to “suffer through a period of low prices in order to deal a final blow to the US shale industry.”

Independent energy expert Anas Alhajji, however, argued that “the Russian position is illogical, even if they want to target shale [because] many shale producers are hedged”—reducing the risk of adverse price movements.

“If they go bankrupt, they comeback stronger with no debt,” said Alhajji.

Demand hit

At the same time, however, oil demand destruction is “almost unprecedented,” said Tom Kloza, global head of energy analysis at the Oil Price Information Service, also known as OPIS by IHS Market. The spread of the COVID-19 epidemic has caused a slowdown in the global economy and with it, demand for oil.

IHS Markit expects first-quarter world oil demand to mark its largest quarterly volume decline in recorded history. It estimates world oil demand at 96 million barrels a day for the quarter, down 3.8 million barrels a day from a year earlier.

“Even if the alliance had agreed to the full 1.5 million bpd cut, that would only have addressed a portion of the demand destruction as a result of the coronavirus,” said Marshall Steeves, energy markets analyst at IHS Markit. “That could exceed 4 million bpd between the loss of Chinese demand, global jet travel, lower gasoline demand as a result of people working at home and decreased economic activity overall.”

Possibility of $30 oil

All hope is not lost, but prices could drop toward the $30 mark if OPEC+ does nothing more until its next official meeting on June 9-10 in Vienna.

There’s still the chance that OPEC+ continues its negotiations, possibly even Saturday, said James Williams, energy economist at WTRG Economics. If OPEC+ doesn’t reconsider over the weekend, prices are likely to move into the $30s a barrel, but stay above $35, he said. “Until we hear more from OPEC, it is all speculation.”

Williams added that he doesn’t expect to see much price recovery until May, and maybe not even then as it depends on how badly the U.S. and European economies are hurt.

On Friday, U.S. benchmark crude futures CLJ20, -9.43% lost 10.1% to settle at $41.28 a barrel, poised for the lowest finish since August 2016, according to Dow Jones Market Data. Global benchmark Brent crude dropped 9.4% to $45.27, for the lowest settlement since June 2017.

“Without Russia, we may be looking at not just a plunge into the $30s but a test of the $26.05 low from 2016 [for WTI] if demand remains stressed by the virus,” said Steeves.

“It is not yet clear when its impact might peak despite recent signs of fewer new cases in China,” he said of COVID-19. “When that becomes true in the western world, volatility might abate.”

“OPEC is no longer the driver of global oil markets that it once was, though obviously still influential, said Steeves. “Unfortunately for them, the breakdown of the alliance will further erode their market power.”

Source: Hellenic Shipping

RUSSIA HAS POTENTIAL TO PRODUCE 160 MLN T OF LNG A YEAR -NOVATEK CEO

Russia has the potential to produce 160 million tonnes of liquefied natural gas (LNG) a year, the chief executive of independent gas producer Novatek , Leonid Mikhelson, said on Wednesday.

Russia’s upper house of parliament earlier approved a zero rate extraction tax on natural gas for further LNG production in the Arctic, from which Novatek is set to benefit.

Source: Hellenic Shipping

CORONAVIRUS VS OIL WAR: WHICH IS WORSE FOR MARKETS?

The stock markets have a new and even more vengeful bogeyman, and this time, it’s not coronavirus.

The U.S. bear market crashed to new lows on Wednesday, and the China coronavirus outbreak was the least of its worries this time around. An unexpected price war by the leading oil producers precipitated an oil price rout that in turn led to a ‘Black Monday’ equity selloff.

Oil logged its biggest daily decline since 2014, with the benchmark Brent crude oil futures driving 10 percent on Friday after a deal between OPEC and its allies, led by Russia, collapsed. Crude oil futures CLJ20, BRNK20 followed that pullback with another sharp 30 percent decline on Monday marking the steepest drop since the Gulf War in 1991.

The mayhem quickly spilled over into the broader market with the S&P 500 Index tumbling 7.6 percent while the Dow Jones cratered 2,013 points for its worst one-day performance since 2008.

The market crash was so fast and so furious that it triggered a key circuit breaker that halted trading temporarily for the first time since 1997.

Energy Stocks Crash

As expected, energy stocks bore the full brunt of the selloff with the industry benchmark, Energy Select Sector Fund (XLE), finishing 20.1 percent lower. XLE is now down 43.5 percent down in the year-to-date in what is shaping up as an annus horribilis for the sector.

Leading energy names were badly hammered, with ExxonMobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) recording declines of 12.2 percent and 15.4 percent, respectively.

However, the oil majors had nothing on smaller producers.

Apache Corp. (NYSE:APA) and Occidental Petroleum (NYSE:OXY) each lost more than half their values on the day to finish 53.9 percent and 52.0 percent lower, respectively.

Marathon Oil (NYSE:MRO), Hess Corp. (NYSE:HES) and ConocoPhillips (NYSE:COP) did not fare much better, losing 46.6 percent, 33.7 percent and 25.3 percent, respectively.

Trump to the Rescue?

In a welcome turnaround, however, energy stocks enjoyed a sharp bounce in premarket trading on Tuesday as investors eyed the possibility of an economic stimulus despite the ongoing price war between Saudi Arabia and Russia.

Related: Big Oil Prepares To Suffer In 2020

President Donald Trump on Monday said he will be taking “major” steps to gird the U.S. economy against the impact of the coronavirus outbreak. Trump is set to discuss a payroll tax cut with congressional Republicans on Tuesday where officials will present the president with several options, including financial assistance to industries affected by the coronavirus and the oil price crash. These measures may include cash injections, tax credits, payroll tax cuts, and tariff reductions on specific Chinese imports.

Oil prices and energy stocks are enjoying a broad bounce on the news. WTI Crude oil April 2020 futures CLJ20 are up 8.35 percent to $33.74/barrel while Brent Crude May futures BRNK20 have gained 8.25 percent to $37.20/barrel.

Meanwhile, XLE has shot up 8.9 percent ahead of the open after tumbling 20 percent on Monday. Among the biggest early gainers, Occidental Petroleum Corp. shares have rocketed 30.7 percent, Apache Corp. has hiked up 21.3 percent while Marathon Oil Corp. has soared 19.8 percent.

Elsewhere, shares of Exxon Mobil Corp. have jumped 9.3 percent while those by Chevron Corp. have climbed 6.6 percent.

But it might be too early to start doing a victory lap just yet.

As Edward Moya, senior market analyst at OANDA, has told Reuters, the oil rally right now could be short-lived as the drivers for both the supply and demand side remain bearish.

After all, crude prices were already so low that there’s not much choice left but for U.S. shale companies to cut production, with bankruptcy already looming large over many in the shale patch.

And it’s that weakness that Russia is pouncing on, while the Saudis are unwilling to give up any market share--hence the oil price war.

"Russia sees US shale as particularly vulnerable at the moment," Ryan Fitzmaurice, an energy strategist at Rabobank, was quoted by CNN as saying. "It is our view that Russia was targeting debt-laden US shale producers."

And there’s much more drama to come, with unconfirmed news reports leaking out of Saudi Arabia and hinting at major Royal disruptions as rumors circulate for everything from the potential death of the Saudi king to the arrest of key royals as the Crown Prince allegedly attempts to solidify his assumption of the ultimate crown.

How oil prices--and a major, unexpected oil price war--will respond to these additional rumors is anyone’s guess at this point, but it will certainly seek to overshadow the steady progression of the coronavirus.

If Saudi Crown Prince Mohammed Bin Salman succeeds in taking over every aspect of the crown, one can assume that the oil price war will take on an even greater intensity.

Source: OilPrice

CHINA LOSES ITS APPETITE: THE IMPACT OF CORONAVIRUS

After months of worries about crude oil supply being thwarted by geopolitics, the industry narrative has flipped, with the novel coronavirus outbreak in China sparking fears about demand. In reaction, oil prices spiralled as low as $53 per barrel of Brent crude, down from a 2020 high of $68 per barrel.

“The market response to the health crisis in China is highly reactionary in nature, given that it is not yet clear how deadly the disease will be and what the long-term impacts on the Chinese economy and commodities could be,” says John Bambridge, features and analysis editor at GlobalData.

At the epicentre of the outbreak is Wuhan, a transportation hub home to 11 million people in central China. As of writing, more than 100,000 people have been diagnosed with the coronavirus, and at least 4,000 are dead because of the illness, with the overwhelming majority in China. The existence of the coronavirus was first noticed by a Chinese doctor in late December 2019, and various reports have estimated that it will take a minimum of one year to develop a vaccine.

“The outbreak of the coronavirus in the Chinese city of Wuhan brought back memories of the SARS outbreak in China in 2003,” says Ole Hansen, head of commodity strategy at Saxo Bank. “Before being contained, it had killed hundreds and hit the Asian economies hard as business and consumer demand plummeted.” China has radically changed since the SARS outbreak, more than doubling its oil consumption—it has a much wider impact on the market now than it did in the early 2000s. The International Energy Agency (IEA) estimates that China was responsible for more than three-quarters of the growth in global oil demand in 2019.

“The timing could not have been any worse with the [coronavirus] outbreak occurring days before the beginning of the Chinese New Year, when hundreds of millions of workers travel home to visit their families. With several cities in lockdown and many events cancelled, the Chinese economy is likely to take an economic hit during the first quarter,” Hansen adds.

Chinese authorities have completely shut Wuhan off from the rest of the world, stopping planes and trains traveling outside of the city, and halting public transportation inside the city. At least 12 other cities in the Hubei Province have restricted travel—considering just Wuhan and two nearby cities, Huanggang and Ezhou, more than 19 million people have essentially been grounded in place. As the coronavirus spreads, more travel restrictions are being enacted in affected countries.

“When cities are placed under quarantine, and public transit is shut down, by definition that reduces economic activity and has a negative impact on energy demand, oil included,” John Freeman, a Raymond James analyst, says in a note to clients. “Once there is evidence that the outbreak is contained and thus economic disruption subsiding, sentiment on oil should improve, bringing prices back up.” But since it was declared a health emergency on 30 January, the coronavirus has spread to at least 35 other countries.

Chinese tourists are responsible for $277 billion worth of spending per year, according to the UN World Tourism Organisation, and with millions facing restricted travel during a major holiday, when fuel sales typically jolt, that means far fewer active trains, planes, buses, cars, and other vehicles—and far less fuel needed to power these vehicles. With many factories shut down and idle, it also means less energy needed to power industries. In any other country, this might not create a huge dent in oil demand. But China has a massive appetite for oil, and anything that happens in China has global repercussions.

China became the world’s largest oil importer in 2016, surpassing the US. In 2019, it imported a record breaking 506 million tonnes of crude oil, according to the General Administration of Customs. The increase is mainly due to growing demand from new plants which have, over time, added 900,000 barrels per day (bpd) of oil processing capacity.

Last year, it halved shipments from the US due to the trade war between the two nations, with no December imports recorded. However, as part of the phase one deal to end the dispute between the two countries, China pledged to buy a minimum of $52.4 billion worth of US energy products in the next two years. Research from Refinitiv showed that China continued to purchase a limited amount of Iranian oil after the US applied sanctions against Iran. In 2019, it imported approximately 14.77 million tonnes, half of the amount it imported in 2018.

Source: Oil&Gas

WILL CORONAVIRUS INFECT GLOBAL ECONOMIC GROWTH? IT’S IN THE BALANCE

As the coronavirus continues to spread and the global death toll passes 3,000, hopes that the economic impacts would be limited look increasingly forlorn.

The Organisation for Economic Co-operation and Development has warned that the global economy faces its worst downturn since the financial crisis as new cases emerge in countries ranging from Iceland to Indonesia, Armenia to Andorra.

Already, the disease has led to cancellations of sporting events and conferences around the world, and events in Japan, where hundreds of passengers were quarantined on the Diamond Princess cruise ship for weeks, are likely to put off many existing and potential cruise ship passengers for life.

The spread of the virus may also have geopolitical implications, ranging from its potential for upending the US presidential election to challenging the authority of the Chinese communist party and President Xi Jinping’s iron grip on power.

Analysts at MSCI have looked at previous events for clues as to what the effect on the global economy could be, noting that even if the impact had largely been restricted to China, coronavirus was always likely to have far more of an impact than the SARS outbreak in 2003 and other previous events. “The reach of China in the global economy is up sharply from previous events,” said Mark Carver, global head of factor index products at the index provider. Not only is China a bigger market, it is also a much larger part of global supply chains.

“Countries like the United States depend on China for both Chinese goods (for direct consumption and as components for manufacturing supply chains) and Chinese consumers (for sales). This means that the pandemic’s economic impact will likely be substantially larger than that of SARS,” according to Think Global Health. “A world economy that is so dependent on China as an industrial lifeline is highly vulnerable to the economic disruption caused by the coronavirus outbreak in the country.”

China’s share of global trade has risen from 5% in 2003 to 11% today, without including indirect links through the global supply chain, added George Bonne, the group’s executive director of equity factor research.

The markets most exposed to China, and therefore to the coronavirus outbreak currently, are its neighbours – Singapore, Hong Kong, Taiwan, South Korea and Australia – which all have a share of more than 10% of their trade with China. But Japan, along with a number of European countries such as Germany, France and Switzerland, also have relatively high exposure – higher than the US’s 5% share of trade with its global rival.

The sectors most exposed to disruption in China caused by the virus are semiconductors, technology hardware, materials and consumer durables, because of the importance of China in the supply chains of these sectors. Retailing and real estate will also be hard hit, but the impacts are much more local.

Sports and entertainment, tourism, airlines and the shipping industry are all likely to see a significant slowdown as well, while oil prices are also depressed. Shipping association BIMCO says that “every week that China remains “closed” will mark a slowdown of economic growth. Seaborne trade is closely linked to economic developments in Asia and the effects are already felt in several different ways.

“Widespread factory shutdowns results in a slowdown of manufacturing and industrial production. The intra-Asian container shipping market, the largest in the world, will be the first trades to feel the fallout from the coronavirus if intra-Asian supply chains are disrupted. Secondly, the long-haul trades to North America and Europe will be affected.

“The virus illustrates just how dependent the world has become upon China with many supply chains deeply embedded into the country. Anecdotal evidence suggests that South Korean car manufacturers have started to reduce output due to supply shortage of Chinese goods,” it adds.

Reuters reports that economists expect China’s growth to slow to 4.5% a year in the first quarter, down from 6% in the previous three months and the slowest since the financial crisis, while Standard Chartered says that the epidemic could affect up to 42% of the country’s economy.

The International Air Transportation Association says that Chinese airlines are set to lose $12.8bn in revenue and the global cost to the industry is like to by $29bn.

There are fears that if a global pandemic is declared, it could cause stock markets to fall even further than they already have. “The spread of coronavirus strikes fear into the markets and reveals that the recent bull years are built on a very fragile foundation,” says Kim Fournais, CEO of Saxo Bank.

Yet there will also be winners from the crisis. Healthcare stocks will receive a boost for obvious reasons – not just pharmaceutical companies developing vaccines but providers of all health-related products and services – and there will also be gains for telecoms and tech companies as people look for ways to do business and leisure activities online rather than meeting in person.

And the crisis is also likely to see the emergence or consolidation of a number of new technological solutions ranging from chatbots for providing information to drones to deliver everything from medical supplies to takeaway meals.

Autonomous sterilization robots are helping hospitals to contain the infections in quarantined wards thanks to their ability to move into a quarantined zone to sterilize virus without human intervention. Chinese medical robot developer TMiRob deployed 10 disinfection robots across major hospitals in Wuhan to contain the spread of Covid-19, GlobalData reports.

And artificial Intelligence (AI) can be used to identify disease outbreaks as well as forecast their nature of spread. “Canadian start-up BlueDot used AI and machine learning to detect the coronavirus outbreak even before the Chinese authorities,” the research group says. “Its AI algorithm analyzed multiple sources such as news reports, social media platforms and government documents to predict the outbreak.”

Despite the overall negative dynamics between a coronavirus pandemic and economic growth, the potential of economic rebound in the immediate aftermath of the pandemic should not be overlooked, Think Global Health points out.

MSCI says that in previous outbreaks such as SARS, markets recovered fairly quickly as the virus faded but that it could take a few months for the economy to return to normality. “Normalisation in previous episodes happened after about four months,” said Thomas Verbraken, executive director for risk management solutions research at MSCI. “Once it’s clear the epidemic is behind us, macro conditions will re-emerge.”

However, when that will happen is extremely unclear. If the crisis is contained relatively quickly, the economic impact, while significant, will be short-lived. But if the virus persists, it could reduce the potential of the global economy to grow for years to come.

Source: Hellenic Shipping

MORGAN STANLEY LOWERS 2020 OIL DEMAND GROWTH OUTLOOK AS CORONAVIRUS SPREADS

Morgan Stanley said on Tuesday it has lowered its oil demand growth forecast for this year, citing slowing demand for crude in China and outside China amid the rapid spread of the coronavirus epidemic.

“We now expect China’s oil demand growth in 2020 to be close to zero, from already low pre-Covid-19 growth expectations of 350 kb/d,” the bank said in a note. “As Covid-19 has been spreading globally, demand outside China is likely to slow further.”

Morgan Stanley cut its 2020 oil demand growth outlook to 500,000 barrels per day (bpd) from 800,000 bpd. It lowered its second-quarter 2020 Brent price forecast to $55 per barrel from $57.5 and cut its U.S. West Texas Intermediate outlook to $50 from $52.5.

“At the upcoming meeting on Thursday and Friday, we expect that Organization of the Petroleum Exporting Countries (OPEC) and partners will announce a headline cut of about 1 million barrels per day for H1, and extend the existing quota until the end of 2020,” the analysts said. “Still, this leaves oil markets modestly oversupplied in 2020 and Brent in the $50s.”

Oil has shed nearly 30% from January highs. U.S. crude dropped below $50 a barrel after the virus hit demand in China, the world’s top oil importer, and sparked concerns about excess global supply.

On Tuesday, the U.S. Federal Reserve surprised investors with a half percentage-point cut in interest rates, amplifying fears about the magnitude of the coronavirus’ impact on the economy.

Barclays in January had flagged risks to oil demand growth and prices due to the epidemic. Barclays said it saw a $2 per barrel downside to the bank’s full-year Brent and U.S. West Texas Intermediate forecasts as virus fears threaten demand.

Source: Hellenic Shipping

GLOBAL OIL DEMAND SET TO DECLINE IN 2020 AS COVID-19 SPREADS: ANALYSTS

Oil demand is set to contract in 2020 as the coronavirus outbreak widened to 72 countries outside China as of Wednesday, threatening to put more pressure on the global economy and fuel demand, according to analyst projections this week.

This is notable because oil demand has consistently increased every year for several decades, with the exception of a few occasions like the early 1990s recession. A contraction in oil demand in 2020 will be the first decline since the financial crisis of 2008-2009.

“Over the last week, the situation has worsened with outbreaks now in a number of additional countries,” Goldman Sachs analyst Damien Courvalin said in a report dated March 3.

“We therefore reduce further our global oil demand growth forecasts to minus 0.15 million b/d in 2020 from 0.55 million b/d previously (and 1.1 million b/d before the coronavirus), its lowest annual growth rate since the financial crisis of 08/09,” Courvalin added.

He said the revisions were entirely outside China given the bank’s aggressive cuts made initially to China’s oil demand growth, the sharp slowdown in new coronavirus cases in China and steady but slow signs of recovery in domestic activity.

Goldman Sachs expects a global oil demand loss of 2.1 million b/d in the first half of the year alone, and cut its oil price forecasts, expecting Brent to trough in April at $45/b before gradually recovering to $60/b by the end of the year. It earlier expected a $53/b trough and a recovery to $65/b.

Separately, energy consulting firm Facts Global Energy said it expects global oil demand to contract by 220,000 b/d on average in 2020, “with strong risks still on the downside we believe, despite a major initiative now for a global economic stimulus.”

“Global oil demand is now expected to contract by 2.3 million b/d year on year in the first quarter of 2020, before only returning to year-on-year growth in the third quarter of 2020,” FGE said. It had slashed its oil demand growth forecast to zero for 2020 last month.

“The source of oil demand in its essence is very simple: producing things and moving things/people. If, as is happening now, production lines slow down or even stand still and global trade and travel stops, oil demand stops growing as well,” FGE said.

Global economy slows

S&P Global Ratings said on Tuesday that the global macro impact of COVID-19 had doubled since mid-February and cut its 3.3% GDP growth baseline by 0.5 percentage points, assuming the epidemic subsides in the second quarter.

“We now estimate that China’s 2020 GDP growth could be lower by 0.9 percentage points to 4.8% this year; and the euro-area by 0.5 percentage points, and Italy by about 0.7 percentage points. Growth in the more-insulated US economy is expected to be lower by 0.3 percentage points,” it said in a report.

“The virus has now gone global. It is no longer just an issue for China and its closest economic partners, and no longer mainly a supply chain issue. Both supply and demand effects are in play, and both are being amplified by tightening financial conditions,” Ratings added.

“Even though the virus’s spread appears to have peaked in China, what we have seen recently is an acceleration outside China,” said Kang Wu, head of S&P Global Platts Asia Analytics.

“Under these circumstances, Platts Analytics expects global oil demand growth to move away from the best-case scenario and come a step closer to our worst-case scenario of 320,000 b/d, though we are not there yet,” Wu said.

FGE said the COVID-19 crisis can develop as either a short-term crisis with less damage to the global economy and a rebound in oil demand from the third quarter, or a long-term crisis that severely impacts global GDP with a prolonged oil demand recovery.

“Our current outlook is more similar to the short-lived price shock in 1990 rather than the global economic crisis a decade ago. In order to become a longer demand shock, the impact on GDP would need to be more severe,” it added.

Source: Hellenic Shipping

COVID-19 THREATENS GLOBAL TRADE, HITS SHIPPING INDUSTRY HARD

Since the outbreak of Coronavirus (nCovid-19) in China, trade especially shipping which has been the most affected sector around the world as the international shipping industry is responsible for the carriage of around 90 per cent of the world’s trade.

Shipping is the life blood of the global economy and without it, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible but, since coronavirus has started, it has disrupted shipping which has affected global trade.

Impact On Shipments To Nigeria

In Nigeria, vessels call into the seaports have reduced significantly due to fear of the spread of the virus. Experts in the Nigerian maritime sector forecast that Nigeria would be losing about N1 billion daily to the outbreak of Convid-19 (coronavirus) as the level of imports arriving Nigerian ports is gradually dropping while port calls to China are becoming less frequent.

This was as a result of fear of contacting the disease and a slowdown in the Chinese economy have deterred cruise liners, container ships, oil tankers and bulk carriers alike from stopping at the nation’s harbours.

Commercial vessels have stopped arriving, with port calls falling by an estimated 30 per cent in February, and container throughput estimated to decline by between 20 and 30 per cent, according to Clarksons, a shipping research company.

However, with more than 50 per cent of Nigeria Import coming from China, many of Nigerian importers are now afraid to take cargoes from china, even as millions who usually travel during this period are canceling their trips.

Conversely, stakeholders described the Coronavirus as a very big blow to Nigeria economy, because most of Nigeria imports are from China, Hong Kong, and other Asian countries and presently, people are scared to take any consignment from China.

Also, the lockdown of a couple of businesses, the impact of Covid-19 has impacted negatively in world trade. Before the virus found its way to the United States, the stock market of the country had been passive in its reaction but last week had been a bloodbath with stocks capping their worst week since the financial crisis as worries over the coronavirus and its impact on the economy continue to rattle investor sentiment.

Oil Prices, Stock Markets

The Dow closed down more than 350 points. The 30-stock index was down more than 1,000 points earlier in the day. The S&P 500 slid 0.8 per cent, while the Nasdaq ended flat.

The impact on the Nigerian economy is two pronged with falling crude prices lowering government revenue from oil and imminent lockdown of some businesses could slow the growth that the country had recorded. Oil price as at Friday night was hovering below $50 per barrel having lost around $10 within a fide day period.

Oil constitutes a large percentage of the Nigerian government revenue and Chief Economist at PwC Nigeria Andrew Nevin had earlier last week warned of the impact of the falling oil price on the revenue and budget implementation of the government.

According to analyst at FXTM, Lukman Otunuga, inspite of the impressive growth recorded by the country in the last quarter, risks to the economy have multiplied. He noted that like many other economies at the time of writing, Nigeria is vulnerable to the spread of the COVID-19 virus in economic and health terms because one of its main trading partners is the epidemic’s epicenter China.

With China is one of Nigeria’s biggest trading partners with total trade flows in Q3 2019 worth over $3.2 billion, Otunuga noted that it is important for the economy for the virus outbreak to be brought under control because if trade flows decline on the back of slowing growth in China, the impacts are likely to be felt in Nigeria.

“While it is too early to tell the precise extent of the slowdown, the impact on the supply chain and trading with China’s trading partners is already evident. Nigeria’s crude oil exports to China fell in February amid weaker oil prices as the outlook for global oil demand weakens.

“Nigeria’s Q1 GDP remains exposed to external uncertainties in the form of weaker oil prices, the coronavirus COVID-10 outbreak, slowing growth in China and the global economy. Since the onset of the virus outbreak early in the year, Oil prices have slipped over 15 percent amid demand-side concerns, the USD has appreciated against G10 and emerging market currencies against a background of risk aversion and Gold has jumped to fresh seven-year highs.

“If it continues to spread, the virus outbreak and subsequent slump in demand from China present major risks to the Nigerian economy. Crude oil revenues account for less than 10 percent of GDP but remain the biggest source of foreign exchange for the nation, 90 percent of export sales over 50 percent of government revenues.

“Falling Oil prices would reduce foreign exchange reserves and ultimately complicate the CBN’s efforts to defend the Naira, meaning potentially heightened pressures on inflation and consumption with an eventual impact on growth. Lower Oil prices also impact the 2020 budget which was based on 2.18 million bpd at an Oil price benchmark of $57 per barrel.

“Moreover, the situation may prompt a greater focus on monetary and fiscal policy to shield the economy from external risks. The CBN meet in March but the economy remains under inflationary pressure so it is unlikely we’ll see an interest rate cut. Instead, the central bank may implement more unconventional tools to stimulate the economy.

Calls For Diversification Intensify

“It is even clearer that diversification is the key to reducing Nigeria’s reliance on Oil revenues and reducing the risks to growth. On the upside, there is still a possibility that the virus outbreak will be brought under control, meaning a return to full power for China and Asia and a relief to health authorities and policy makers in Nigeria and other countries.

Covid -19 In Nigeria

However, following the recent confirmation that the coronavirus disease has reached Lagos State in Nigeria, the Federal Airports Authority of Nigeria (FAAN) and Port Health Services have intensified screening exercise on both incoming and outgoing air passengers at the Murtala Muhammed International Airport (MMIA) and other airports across the country.

On Thursday, an Italian businessman who works in Abeokuta, Ogun State was confirmed to have been infected with Coronavirus. The Italian identified to be the first carrier in the country has been confined to an isolation facility at Mainland Hospital, Yaba, Lagos where he is responding to treatment. The patient is said not to have shown acute symptoms of the virus yet.

Consequently, it was gathered that there is imminent hike in the price of protective equipment, such as face masks, arising from panic and fears of contacting the disease by the society. Further checks show that some traders in Nigeria as at yesterday, have started to tinker with the cost owwf such masks.

A trader who sells face masks in Yaba area of Lagos, Chinedu Kambiri confirmed a slight increase in price of the masks. According to him “Yes many people are looking for it now; there are fears everywhere”. Kambiri added that, before now, it is only those who work in dirty environments wear, pointing out, that the situation has changed now as many Nigerians have started wearing it in public places.

Another trader of the protective material also in Yaba, John Udeh, stated that, the price has not gone up but that there signs it will go up in no distant time because of the rising demand. “The price has not gone up in my shop but the truth is that when many people start coming for it, it will surely go up. You know that when demand goes, up price follows,” Udeh said.

Efforts Of Aviation Agencies

But to further stop the spread of the virus, FAAN had already started making frantic efforts to get details on the index patient. The action of the aviation agency is geared toward ascertaining how the Italian underwent screening procedures at the airport.

Regional manager, Murtala Mohammed International Airport, Lagos, Mrs Victoria Shin-Aba told WEEKEND LEADERSHIP that screening had been strengthened to detect any suspicion of the Corona Virus infection.

According to Shin-Aba, all screening facilities, thermal body and infrared scanners had since been deployed since the outbreak of the covid19 for the screening of both inbound and outbound passengers. Mrs. Shinaba also noted that FAAN was working with the relevant Port Health Unit personnel and other stakeholders nationwide on the containment measures.

Also commenting, General Manager, Public Affairs, FAAN, Mrs. Henrietta Yakubu said the authority was on top of the situation as it had escalated containment measures at airports nationwide, adding that all concerned stakeholders; health officers, airlines and other secondary partners were all on red alert on the new development.

She urged air travellers and the general public to acquaint themselves with the Ministry of Aviation, health updates on prevention, and information posted at strategic areas at the airport as well their jingle on the virus for prevention purposes.

FAAN also appealed to those residing around the Lagos airport not to entertain any fear over the recent mock exercise it just carried out at the Murtala Mohammed International Airport, MMIA, Lagos.

Mrs. Yakubu, said the emergency simulation exercise is an operational requirement of the International Civil Aviation Organization (ICAO) for aerodromes which is aimed at ascertaining the level of preparedness of the airport in real-life emergency situations.

She urged all airlines and the general public to always collaborate with FAAN and other aviation agencies to give the needed assistance in ensuring the safety of lives and facilities at the airport in the event of an emergency.

Global Investors Wary

Last week, founder and CEO of deVere Group, Nigel Green one of the world’s largest independent financial services had warned that investors must take action sooner rather than later to build and safeguard their wealth.

According to him, the world is expected to undergo another global economic meltdown as deadly coronavirus and heightening geo-political and trade tensions is expected to drive the world to the brink of a global recession this year. He warned that the recession would be severe because Central Banks around the world are running out of weapons to see off the threats.

The warning comes as Asian-Pacific, European stocks and U.S. futures fell on Wednesday as the global market sell-off triggered by concerns over the impact of the coronavirus outbreak grew. Green said: “Investors have largely been caught off-guard by the serious and far-reaching economic consequence of the coronavirus.

“This, despite major multinational organisations already lowering their profit guidance, and many more likely to do so in coming weeks. Clearly, this will hit global supply chains, economies across the world and ultimately government coffers too.

“However, it does seem that this week the world is waking up to the reality of the situation as the containment of coronavirus hasn’t yet materialised and confirmed cases soar in different countries. Until such time as governments pump liquidity into the markets and coronavirus cases peak, markets will be jittery triggering sell-offs,” he added.

Also earlier this week, Nigel Green noted in addition, coronavirus has struck at a time when major economies, including Japan, Germany, India and China’s Hong Kong are already facing a serious downturn.

He continues: “It doesn’t end there. Investors also need to consider the impact of the U.S. presidential election, the tensions between Iran and the U.S. and how oil prices will be hit if these intensify, and perhaps most significantly there’s the simmering trade war between the U.S. and China – the world’s two largest economies.

“China’s current economic slowdown will reduce the country’s ability to buy $200 billion more U.S. goods, as promised in the Phase One trade deal. And that was the ‘easy’ bit. Phase Two is more about the U.S. trying to limit China’s tech ambitions and it has been reported that Beijing is unwilling to negotiate on many of these issues, and instead would play for time.”

The deVere CEO goes on to add: “The combination of these headwinds is likely to dampen business confidence and investment, profits, and consumer demand throughout the rest of this year. Together they could push the world to the brink of a global recession this year. This would be severe because central banks are running out of weapons to see off the threats.”

Green concludes: “Whilst I am confident that we’ll narrowly avoid a global recession in 2020, no-one can accurately predict the future – as we have seen with coronavirus, which markets wrongly assumed would be limited to mainly China. Therefore, in the current volatile environment, investors – including myself – will be revising their portfolios and drip-feeding new money into the market to take advantage of the opportunities whilst reducing risk at the same time.”

Global Shipping Feels the Brunt

However, the receding world trade has been traced to the shipping industry which has been badly hit by the (Coronavirus) Convid-19 spread. From shipping companies to seafarers and dockworkers, everyone has entertained fear as the cure for the virus has remained inevitable.

For instance, the global shipping industry is faced with $1.7 billion revenue loss to coronavirus because the industry is being faced with a downfall of some 1.7 million TEU. Maerk line, a Danish shipping company is expected to face the biggest impact since China represents 30 percent of its annual shipping volume. Hapag Lloyd can also face a weak first quarter because China operations account for 25 percent of the group’s total revenue.

The impact of the coronavirus outbreak on the shipping industry “is continuing to increase in scope, and the ripple effects are continuing to show up,” said Sea-Intelligence, an analysis company specialised in the sector, in its weekly report. The observation comes at a time when industries and commerce are starting to slowly get back to work across China.

According to the document sighted by LEADERSHIP, in the 10-week-period, comprising of the Chinese New Year and the ongoing coronavirus outbreak, the industry is being faced with a downfall of some 1.7 million TEU (twenty-foot equivalent unit is the inexact unit of a container), roughly $1.7 billion in revenues for the carriers.

For the Copenhagen-based company, this TEU loss represents one percent of the total global volume in 2019, meaning that the “coronavirus is thus far on track to reduce global container growth in 2020 by one percentage point.”

“The hope is that the situation will be brought under control in the near future and that we will get a V-shaped recovery,” the report said, noting that it is possible for the shipping companies to catch up on some of the 1.7 million TEU.

But even in this case, because many containers were exported out of China and there were so many blank sailings, it “will be a challenge for carriers to repatriate them quickly enough to meet a sudden post-virus surge out of China.”

Andy Lane, an analyst at Sea-Intelligence, said, “Without a large escalation of new infections, and as people get back to work, there should be noticeable improvements within a few weeks.”

According to ship-technology.com, the number of port calls at Shanghai and Yangshang declined by 17 percent in January, compared to the same period in the previous year. Previously reported congestion in Chinese ports is also affecting other ports, since companies had to unload refrigerator (reefer) containers in other locations, increasing reefer plug utilisation there, the report revealed.

The document said that Indian importers can’t get the proper documents from the Chinese counterparts, so “the cargo is stuck at Indian ports, creating congestion problems,” which means congestion is affecting several other ports in Asia.

To avoid factory shutdowns due to lack of components, some auto plants, like Jaguar Land Rover, opted to use air cargo trips. Since the Chinese New Year is the biggest holiday in China’s calendar, shipping and logistics companies already expected a higher number of blank sailings (cancellations by the carrier), but those estimates were elevated due to the epidemic.

The largest capacity reduction was registered in Asia to North Europe lane, where 11 percent of the capacity was blanked since the Chinese New Year. When considering the holiday’s blanks, 29.5 percent of the capacity was removed from the trade, in over 10 weeks.

In the Transpacific trade to the North American West Coast, 10 percent of the sailings were blanked due to the virus, bringing the total level of blanked capacity to 24.1 percent. In the 10-week-period, during which the coronavirus has affected every sector in the industrial chain, the Transpacific trade to the West Coast now “equals 74 percent of the normal Chinese New Year removal.” In the Asia-Mediterranean lane, the impact is 71 percent.

Source: Hellenic Shipping

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