Factbox: Global oil, LNG markets remain bearish as coronavirus impacts demand

Global oil and LNG markets remained mostly bearish Monday, as the spreading coronavirus continued to weigh on demand expectations.

Globally, the number of confirmed cases has risen to 40,645, with 40,262 of those in China, according to the World Health Organization.

Travel restrictions were still preventing millions of workers from returning to work Monday and factories expected only partial production restarts, with some delaying a return to operations until late February or early March.

Airlines have canceled flights, reducing jet fuel demand.

Crude prices have fallen steadily since January 20, when news of the outbreak began to take hold of the market. Dated Brent has fallen 18% to $53.115/b, according to S&P Global Platts data, while NYMEX front-month crude futures have fallen below $50/b.

Russia has yet to inform its OPEC partners whether it will commit to new output cuts that were recommended by an advisory committee last week.The recommendation calls for the alliance of OPEC, Russia and nine other countries to tighten production quotas by 600,000 b/d through the second quarter.

"OPEC+ dropped the ball and now hopes for an oil rebound will rely on continued optimism that the coronavirus will peak over the next few weeks," OANDA senior market analyst Edward Moya said in a note. "WTI crude remains vulnerable to the mid-$40s if we see a setback in a return of normalcy in Chinese travel and trade."

In LNG markets, the drop in demand has raised the possibility of more Chinese importers reneging on supply contracts, with suppliers expressing concerns about cargo cancellations after state-run CNOOC, China's largest LNG importer, declared force majeure last week.

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PRICES

Oil

**Dated Brent was assessed by S&P Global Platts at $53.115/b Monday, down $11.31, or 18%, since January 20.

**The crude price drop has been seen primarily in the front of the curve, reflecting the expectation that demand losses will be short-lived. The NYMEX crude front-month/six-month spread settled in a $1.03/b contango Monday, compared to a $1/b backwardation January 20.

**The Singapore jet crack spread against Brent ended Monday at $8.64/b, down from $11.34/b January 20.

**The Rotterdam jet fuel crack against Brent ended Monday at $11.28/b, down from $14.17/b January 20. The New York jet crack ended at $12.48/b, down from $14.19/b January 20.

LNG

**The Platts JKM, the LNG price benchmark for the Northeast Asia region, fell to an all-time low to be assessed at $2.763/MMBtu Monday, down 34% from January 20.

**The Platts FOB Gulf Coast LNG price has fallen 20% since January 20 to be assessed at $2.153/MMBtu Monday.

Shipping

**The West Africa to East route for VLCCs was assessed at $17.11/mt Monday, down $15.31 since January 21.

**The Arab Gulf to China VLCC route was assessed Monday at $9.06/mt, down $10.28 since January 20.

Metals

**The front-month rebar futures contract on the Shanghai Futures Exchange closed at Yuan 3,380/mt Monday, down 9% from January 20.

**Platts assessed the 62% Fe Iron Ore Index at $81.70/dry mt CFR North China Monday, up $1.60 on the day, but down 15% from January 20.

**The London Metal Exchange three-month copper price ended Monday at $5,667.50/mt. That was unchanged on the day, but down $603 from January 20. Copper is often seen as a barometer for global economic health.

TRADE FLOWS

Oil

**Russia has yet to inform its OPEC partners whether it will commit to new cuts that were recommended by an advisory committee last week.

**The recommendation calls for the alliance of OPEC, Russia and nine other countries to tighten production quotas by 600,000 b/d through the second quarter -- more than a third greater than the current 1.7 million b/d cut accord already in place, which should be extended through the end of the year.

**Buying appetite from Asian refiners is practically non-existent at the moment, traders of sour crude said Monday.

**Demand for Chinese mainstays such as Russian ESPO Blend crude and medium sour Oman is expected to take a hit this month, with trade and economic activity declining.

**Platts Analytics worst-case scenario shows a drop of 4 million b/d in oil demand in February; its best-case scenario shows a drop of 1.5 million b/d in oil demand for February.

**Platts Analytics worst-case scenario shows a drop of 1.125 million b/d in global jet demand in February; its best-case scenario shows a drop of 876,000 b/d in for February.

**Key international airlines have suspended or reduced flights due to the virus.

**The demand destruction was expected to increase jet fuel availability in Asia with the possibility it could make its way into Europe in March.

**China's refinery crude runs are expected to be 12 million b/d in February, according to Platts Analytics' best case scenario. In its worst case scenario, runs are forecast at 11 million b/d, down from 13 million b/d assumed before the coronavirus epidemic.

**That reduction represents 30 to 60 million barrels of oil already purchased and on its way to China that will need to be either resold and/or kept in storage for future usage.

LNG

**The impact of China's coronavirus outbreak on LNG market is expected to worsen in coming weeks as economic activity in key manufacturing hubs struggles to rebound, keeping a lid on natural gas demand and triggering more LNG trade flow disruptions.

**China's state-owned CNOOC has declared force majeure on LNG contracts.

**CNOOC remains most affected due to the suspension of many factories and transport restrictions, and many domestic LNG terminals were running with high inventories due to the fall in gas demand.

**A source with city gas distributor Guangzhou Gas said only half of its employees were able to return to work Monday morning, and gas demand from its customers had fallen by around 40% in the past two weeks.

**Australian LNG exports are most exposed to any potential cargo cancellations by Chinese buyers.

**It said that CNOOC has contracts with Shell's QCLNG at the Port of Gladstone in Queensland, Australia.

**QCLNG, as well as its neighboring Origin-ConocoPhillips' Australia Pacific LNG which are Australia's most vulnerable LNG projects to any demand shocks stemming from the outbreak, energy consultancy EnergyQuest.

**Australian gas producer Woodside, one of CNOOC's biggest suppliers, has not received a force majeure notification.

**CNOOC has more than 20 million mt/year in FOB and DES sales and purchase agreements.

**The force majeure and coronavirus impact, combined with a lack of tariff relief on Chinese imports of US LNG, create a perfect storm for already struggling project developers in the US.

**Several US developers have delayed final investment decisions, with one warning it was running out of cash to continue normal operations.

**Cheniere has a 1.2 million mt/year supply contract with PetroChina. Cargoes are being lifted, but have been diverted since last year due to Chinese tariffs.

**S&P Global Platts Analytics forecasts that if reduced industrial activity across Hubei Province extends through the end of February, it would reduce Chinese LNG demand by 5%-7% relative to its base case, driving down imports.

Metals

**Inventories of major metal commodities have increased substantially in China in recent weeks amid falling demand from China, leading to depressed prices.

**The rise in stocks in China is mainly due to transport restrictions, although there is also an element of seasonality due to a typical fall-off in production during the Lunar New Year period, analysts from BMO Capital Markets and ING Economics said.

**Chinese steel market inventories surged 35% from end-December to 12.38 million mt on January 17, the China Iron and Steel Association said.

**Market sources said depressed demand would see inventories exceed last year's peak of 22.32 million mt by the end of this month, even as some mills announced steel production cuts of 20%-30% from March, partly due to the bringing forward of maintenance.

**Henan province produced 10.96 million mt of alumina in 2019, the third largest after Shandong's 25.68 million mt and Shanxi's 19.96 million mt, according to government data. Henan's output accounted for about 15.1% of the nation's total.

**China's finished steel consumption in February could be up to 43 million mt lower than a year ago due to the outbreak closing down construction and manufacturing activity. This equates to a reduction in pig iron consumption of up to 38 million mt.

**Even if the spread of the virus stops accelerating in February, work at factories and construction sites is unlikely to resume to any great extent until February 24.

**In this case, finished steel consumption is likely to be dented by 31 million-43 million mt this month, equating to 28 million-38 million mt of pig iron. The pig iron demand loss is equivalent to around 47%-64% of last February's output of 60.08 million mt.

**China is the world's biggest steelmaker, producing 996.3 million mt of crude steel in 2019, up 8.3% on 2018 and accounting for 53.3% of global output, a growing share, according to the World Steel Association.

**China's car production and sales will be impacted by the coronavirus in the first quarter, denting demand for auto sheet -- but the widespread closure of public transport during the crisis could incentivize new car purchases once things return to normal, S&P Global Ratings analysts said.

**China's auto sector accounts for around 6% of the country's total steel consumption, Platts estimates. The China Iron & Steel Association has forecast that China's total steel consumption will grow by 2% this year to just under 890 million mt.

**The association has predicted that China's passenger car production and sales will decline by 2% this year, which would mark the third consecutive year of declines in the sector.

**A temporary fall in Chinese steel production and demand due to the outbreak and related restrictions could lead to higher steel production elsewhere and a buildup of inventories that may weigh down global steel prices, according to analysts at brokerage firm Jefferies.

**China is the world's biggest iron ore consumer, taking more than half of seaborne supplies.

Shipping

**With the coronavirus outbreak coinciding with the Lunar Year holidays, a lack of demand from China has been putting pressure on tonnage requirements out of the West African region. China is a major buyer of WAF crudes.

**Delays in loading and delivery of cargoes in the tanker, dry bulk and container shipping segments are being reported due to ships being forced to sit idle amid a lack of crew availability.