Chinese Outbreak Could Impact Crude Prices
January 24th, 2020
The news for the coronavirus continues to move in a bad direction. China restricted more travel from more cities and has cancelled some public events in the hope of stopping the spread of the virus. Currently 40 million people are in the ban so the impact to energy demand will be see at some point. This again in not good news for travel, economic growth and energy demand. The numbers vary but what I have seen this morning is 600 cases and 18-25 deaths. The World Health Organization did hold a press conference and issue a statement to help to calm some of the fears about the current outbreak. They said it was a bit too early to consider this event a public health emergency of international concern. Fear can really run rampant and fear can impact markets. There are of course other reports that make the situation much more dire than the WHO did and like most events the truth is likely in the middle somewhere. But this virus event is a hot news item and does have implication on energy depending upon how long the travel band is and how many people are impacted. I have shown the estimates from Goldman Sachs and JP Morgan about their outlook toward the impact on crude prices if this current event gets to the point that it is similar to the SARS virus outbreak.
JP Morgan said yesterday that they estimate a $5 price drop in crude pries if the coronavirus crisis develops into a SARS style epidemic. JP Morgan kept their Brent crude oil forecast at $67 for the first quarter of 2020.
The DOE inventory report had a few surprises and it was viewed at supportive of prices. Crude stock were down 400,000 barrels and the market was calling for a build in the area of 500,000. Stocks of crude oil at Cushing, Ok were down 960,000 barrels and that also offered support to the market. Gasoline stock rose by 1.7 million barrels when the outlook was for a bigger build of 3.4 million barrels. Distillates stocks were down 1.2 million barrels and the market was looking for a build of 1.5 million barrels.
The International Monetary Fund (IFM) downgraded the world economic forecast by 0.1% down to 3.3% because of greater than expected slowdowns in India and other emerging markets. However, the IMF said the United States and China trade deal was another sign that trade and manufacturing activity could be near the bottom.
Libya’s crude oil export capacity is now under force majeure after pipeline blockades in the east and west of the country negatively affected crude oil production. Libya was exporting close to 1.2 million bpd during the 4th quarter of 2019. If Libya exports are stopped for a sustained period, then the small storage they have will fill up and crude oil production will go down to 100,000 bpd.
Propane inventories had a draw of 1.430 million barrels putting total stocks at 86.508 million barrels. Last year at this time there were 63.782 million barrels so there are some 22.726 million more barrels now than last year. The vast majority of that is in the Gulf were there are currently 58.7 million barrels compared to last year at this time when there were 36.62 which puts Gulf stocks 22.14 million barrels ahead of last year at this time. The Midwest currently has 18.537 million barrels and last year at this time there were 18.574 so the Midwest is 37,000 barrels less than last year.
Saudi Arabia continues to do their part in working to support crude oil prices. Saudi Arabia’s Energy Minister, Price Abdulaziz bin Salman Al-Saud, said all options are open at an OPEC+ meeting in March, including further cuts in oil production.
Russia also doing their part also to help support prices. Russia’s Lukoil expects the deal between OPEC and non-OPEC producers to limit oil output to be extended beyond March. The current agreement is due to expire at the end of March.