German Economy Shows Signs of Struggle
February 14th, 2020
Crude oil prices closed higher today , which was mainly driven by less fear of world demand destruction by the coronavirus (COVID-19). Confirmed cases of the coronavirus (COVID-19) spiked in China’s Hubei province due to a change in the methodology for diagnosing rather than in increase in transmission.
There have only been 2 new confirmed cases in the US since last Friday and the current confirmed cases stands at 14. Elsewhere in the world the virus also has not spread rapidly outside China. To put things in perspective , influenza A infects between 9 million and 45 million people in the US each year and causes 12,000 to 61,000 deaths. This new virus and its unknowns have raised fears and fears’ impact is always hard to gauge.
Russia appears to be leaning more to the side of supporting the OPEC production cut suggested by the Technical Committee. This gave support to price yesterday.
The International Energy Agency in a recent report reduced its global growth forecast for the whole of 2020 by 365,000 bpd to 825,000 bpd, the lowest since 2011. It forecast a fall in demand for oil produced by OPEC, while output growth by US companies may not be impacted until later in the year. The current outlook for US shale oil production is still very strong and if that holds true could be problematic for OPEC+. Of course, the unknown is still what has and does COVID-19 virus do to demand, how much demand destruction has already happened and how much will there be. The other issue is how long does this situation last. Currently the market has rebounded on reduced fear of the virus, but I think some patients might be in order. But those speculators hoping to catch a bottom and make money are quick to jump in on any turn. The question now for the market is can these buyers(bulls) continue to push this market higher and take out resistance levels which will open up more upside.
US Energy Secretary, Dan Brouillette, said the coronavirus ( COVID-19) epidemic in China has had a marginal impact on energy markets and is unlikely to dramatically push up oil prices even if Chinese demand falls by 500,000 bpd. He however, cautioned that there had been some “slowing” of Chinese energy purchases. He said there could be a greater impact if the new virus continued to expand at a rapid pace, affecting flights in and out of the county and hitting China’s economy. I will just point out that there are estimates on China’s demand decline from 200,000 bpd to up to 3.0 million bpd impact. This is still a true unknown at this point and only time will tell.
Approximately 60 million Chinese citizens have been under lock down since news of the coronavirus broke. That is 60 million, not going to work, no cars, no trains, no subways. This has to have an economic impact. China is the world biggest oil and natural gas importer and they consume about 25% of the total work crude oil consumption, according to Forbes magazine. China is providing monetary stimulus to try and stimulate its economy and slowly more of its factories are restarting which will help to ease some of the economic concerns.
From Bloomberg. Europe’s largest economy stagnated in 4Q, with Germany showing growth of only 0.6% for the whole of 2019. While country managed to avoid a recession for now, the added risks from the coronavirus means it may not be out of the woods yet.