The coronavirus has caused the first global drop in oil demand since the 2008 financial crash as the outbreak batters the Chinese economy, experts warned today.
The International Energy Agency (IEA) said demand was expected to fall dramatically as the impact on China sends ripples throughout the world.
‘Global oil demand has been hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China’s economy,’ the IEA said in its latest monthly report.
‘Demand is now expected to fall by 435,000 barrels year-on-year in the first quarter of 2020, the first quarterly contraction in more than 10 years’ when it dropped during the global economic crisis, it added.
The gloomy forecast comes as the number of Coronavirus deaths leapt 242 in a single day – the biggest rise ever – to a total of 1,365 and the number of total infections soared past 60,000.
After changing the way they record the virus, the Health Commission in the Chinese Hubei province found there were 15,000 more than they thought which meant the figure shot up from 45,000 to 60,000 in the world in a single day.
The coronavirus will cause Global oil demand to drop for the first time since the 2008 financial crash as the outbreak batters the Chinese economy, experts warned today. Pictured: A petrol station staff member pumps petrol into a car at a petrol station in Beijing
Coronavirus deaths leapt 242 in a single day – the biggest rise ever – to a total of 1,365 and the number of total infections soared past 60,000
While the IEA still expects demand for oil to grow for this year as the outbreak is contained, it slashed its forecast for the increase in global consumption by nearly a third to 825,000 barrels per day, the smallest increase since 2011.
The outbreak of the new coronavirus spurred China to take drastic measures such as placing in quarantine over a dozen cities and extending the Lunar New Year holidays in order to try to stem its spread, nearly shutting down key parts of its economy.
Although markets have rebounded in recent days as investors grew confident that China could quickly contain the virus and its economic impact would be short lived, the IEA warned against complacency by comparing today’s crisis to the 2003 SARS outbreak.
‘While steps taken in China to reduce its spread were adopted earlier than in the SARS crisis and have been far more extensive, the profound transformation of the world economy since 2003 means China’s slowdown today is bound to have a stronger global impact,’ it said in the report.
With it estimating that China’s international air travel having fallen by 70 percent and domestic travel by half in the early part of the crisis, the IEA expects double digit drops in jet fuel demand in the country.
A similar drop in diesel demand is expected due to other travel restrictions.
The IEA doesn’t forecast changes in oil prices, but said consumers were unlikely to get much of a boost from cheaper petrol and diesel at the end of the day.
‘The effect of the Covid-19 crisis on the wider economy means that it will be difficult for consumers to feel the benefit of lower oil prices,’ it said.
With China being a big consumer of oil and the source of most of the growth in oil demand in recent years, the crisis will have a major impact on oil producers.
At the end of last year, OPEC and its allies including Russia, called OPEC+, agreed to further cuts in oil production in order to compensate for rising production in the United States and avoid excess supplies that would depress prices.
They are now considering an additional cut of 600,000 barrels per day to compensate for the drop in demand due to COVID-19.
The IEA estimates that the demand for OPEC crude has dropped from 29.4 million barrels per day (mbd) in the final quarter of 2019 to 27.2 mbd in the first three months of this year.
It noted that this is 1.7 mbd below what what OPEC produced in January when the new production cuts came into force.
OPEC on Wednesday cut its forecast for growth in global oil demand as well due to COVID-19.
The sharp rise in deaths and infections unnerved world markets on Thursday, as traders halted the rally in stocks and retreated to the safety of government bonds and gold.
Europe quickly followed Asia into red with the London FTSE , Frankfurt’s DAX and Paris’ CAC 40 down 0.3 per cent to 0.9 per cent, and the euro slumped near a three-year low against the dollar after a torrid couple of weeks.
AXA Investment Management’s chief economist Gilles Moec said the impact of the virus could be part of a ‘perfect storm’ for Europe that hurts the economy for months and then gets compounded by a heated trade battle with the United States.
‘We started with the premise that this virus would be worse than SARS and that has become the consensus,’ Moec said.
‘So attention turns to who is hit the hardest and Europe is among the usual suspects and Germany in particular given China is its biggest export market.
‘So the reaction of the exchange rate is probably rational,’ he added.