Effect of Corona virus on oil market

Image

Author Name: Joel James

Category Name: Geology & Earth Science

Description:

Effect of Corona virus on oil market

Since January, the spread of the coronavirus has sent global stock markets tumbling and reversed nearly all the positive momentum in oil prices over the past four months, doubling down on a pessimistic oil demand outlook despite numerous short-term risks to supply. As the virus spreads beyond Asia, the oil market will continue to suffer losses, but the question remains: how deep and for how long?

Coronavirus affects the oil market in two ways. First, travel restrictions due to containment efforts limit the use of jet fuel, and supply chains slow and industrial activity declines as companies send workers home—meaning less oil and oil-based products are being used and produced. This has very direct effects on oil consumption and informs near-term calculations of real oil demand. Second, the stock market reaction to the effect of the coronavirus on the global economy builds a projection of global oil demand over the long-term. As broader market sentiment about the health of the global economy declines, so do projections about the future oil demand curve, prompting flight away from oil and energy stocks and further drawing down prices.

Over a remarkable one-month period, early expectations of the impact of the coronavirus on oil demand transitioned from initial assessments that the virus would primarily reduce Chinese oil demand and broader jet fuel consumption to assessments that indicate much larger impacts on global economic growth for the balance of the year. An initial note by Barclays in late January projecting that oil consumption would decline by approximately 600─800,000 barrels per day (bpd) over Quarter 1 and by 200,000 bpd over the entire year has been eclipsed by the International Energy Agency’s (IEA) downward revision of annual oil demand growth by 365,000 bpd. The conversation about oil demand for the balance of the year is now dominated by the emerging possibility of a recession.

Oil and Gas Research accepts direct submissions from authors: Attach your word file with e-mail and send it to oilgas@engjournals.com  

Media Contact:
Joel James
|Managing Editor
Biomedical Research
Email: oilgas@engjournals.com