Opec slashes global oil demand growth triggering production cut concerns3 min read . Updated: 12 Feb 2020, 09:53 PM IST
- Coronavirus outbreak in China accounts 'for most of the downward revision'
- In the report, OPEC said world oil demand will rise by 990,000 bpd this year, down 230,000 bpd from the previous forecast
New Delhi: The Organization of the Petroleum Exporting Countries (Opec) grouping on Wednesday slashed the global oil demand growth by 0.99 million barrels per day (mbpd) in 2020, with the Coronavirus outbreak in China accounting “for most of the downward revision".
The demand was lowered by 0.23 mbpd Concerned over the situation, the Opec may advance its 5-6 March meeting, with its technical panel recommending a provisional cut to the Opec plus arrangement.
This assumes importance given that any further supply cuts will have wide-ranging impact on energy markets, as Opec accounts for around 40% of global production. With Opec accounting for 80% of India’s crude oil imports, any production cut by the so called Opec plus arrangement may also compromise India’s energy security efforts in the short run. India is the world’s third-largest crude oil buyer and the fourth-largest LNG importer.
“Oil demand growth in 2020 is revised down by 0.23 mb/d from the previous month’s assessment. With this, global oil demand is now forecast to grow by 0.99 mb/d and average 100.73 mb/d for 2020, with OECD oil demand growing by 0.01 mb/d in 2020, while non-OECD oil demand is growing by 0.98 mb/d. The outbreak of the Coronavirus in China during 1H20 is the major factor behind this downward revision," Opec said in its Monthly Oil Market Report.
A novel coronavirus outbreak in China has caused oil demand to plunge in the world’s second-biggest economy, forcing state-run CNOOC, China’s biggest LNG importer, to suspend contracts. Several refineries, including Sinopec, the world’s largest refiner, plan to reduce output or shut plants. This has also led shipping rates to fall. Trade tensions and a slowing global economy also have an overhang on energy markets.
“The possible effect of Coronavirus on neighbouring countries in OECD Asia Pacific is also accounted for. In non-OECD, 2020 oil demand projections were also revised lower, mainly in China and Other Asia to reflect the Coronavirus and its impact on transportation fuels, with jet fuel being impacted the most, as well as industrial fuels in China and nearby Other Asia countries…The slower economic expectations for China and India were also accounted for," the report added.
Weighed by a decline in the manufacturing sector, India’s factory output contracted in December while retail inflation accelerated for the sixth consecutive month in January, raising doubts on the recovery process of the fledgling Indian economy. India’s economic growth is estimated by the National Statistical Office to hit an 11-year low of 5% in 2019-20 on the back of sluggish consumption and investment demand.
“The impact of the Coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020. Clearly, the ongoing developments in China require continuous monitoring and assessment to gauge the implications on the oil market in 2020," the Opec report said.
State-run oil marketing companies (OMCs) on Wednesday substantially raised non-subsidized domestic cooking gas prices across the country including metropolitan cities. The sixth hike since September last year ranged from Rs144.5 (for Delhi) for a 14.2 kg non-subsidised liquefied petroleum gas (LPG) cylinder to 149 (for Kolkata).
Battling a severe slowdown, India has been imploring Opec to not affect deeper crude oil production cuts. India has also been pitching for better commercial terms for crude oil imports.
“The Chinese government has decided to delay the release of customs data, meaning it could take until the next month to find out the extent of the supply disruptions due to the Coronavirus outbreak," the report added.
This comes against the backdrop of oil markets facing a situation called contango wherein the spot price is lower than a futures contract.
“However, the risk of slowing oil demand due to the Coronavirus outbreak has had more impact on physical crude price time spreads, compared to futures prices," the Opec report said.
Indian firms are on a hunt for bargains on diverted cargoes of crude oil and liquefied natural gas (LNG), with Chinese energy majors declaring force majeure to avoid taking delivery of some cargoes, Mint reported on 10 February.
India is a key Asian refining hub, with an installed capacity of more than 249.36 million tonnes per annum (mtpa) through 23 refineries.
India, which is one of the major Opec consumers, has also called for a global consensus on “responsible pricing". Also, India has consistently been pitching for a price and terms correction on the so-called Asian premium. With most Asian countries being primarily dependent on West Asia to meet their energy needs, customers from the continent are seen paying the Asian premium as compared to the prices paid by the US or the European Union.