As oil markets balance between a series of evolving challenges including the coronavirus, Brexit, IMO 2020 and the ongoing energy transition, storage operators are continuing to invest in preparation for an unknown future. Amy Mclellan reports.
AT THE time of writing, analysts, traders and investors around the world were on a crash course in epidemiology. The coronavirus epidemic has led to a sudden contraction in Chinese oil demand and a sharp drop in oil prices. The public health emergency is a timely reminder of how suddenly market dynamics can shift, not to mention the extent to which China’s vast economy buoys economic activity around the world.
In early February, oil prices tumbled as analysts hurriedly updated models to reflect the fast-changing crisis, which
saw the introduction of strict travel restrictions and factories shuttered across China in a bid to contain the outbreak. Hubei province, the epicentre of the epidemic, is home to 58 million people and responsible for 4.5% of Chinese
GDP. Altogether the affected provinces account for around two-thirds of Chinese oil demand.
‘As the world’s largest crude consumer, any reduction in Chinese demand is bearish for global oil prices,’ says John
Morley, associate editorial director, EMEA oil at SP Global Platts. ‘In recent days we have seen drops in crude futures prices, physical crude differentials – particularly for grades purchased in large quantities by Chinese refiners – and a weakening paper market structure.’