New York — Oil prices moved sharply lower this week amid a renewed focus on demand destruction following a flurry of new coronavirus cases outside of China.
ICE front-month Brent futures settled at $50.52/b Friday, down $7.98 on the week, and down 22.5% since January 20, when commodities markets began to react to the virus.
S&P Global Platts Analytics has adjusted its 2020 global oil demand growth outlook down to 860,000 b/d, marking the weakest forecast since 2011. Asian refined products demand is expected to grow by 380,000 b/d in 2020, "posting its weakest growth since the global financial crisis in 2009," according to Platts Analytics.
Globally, 84,161 cases of Covid-19 coronavirus have been confirmed in 59 countries as of Friday, according to University of Virginia data.
While the overall number of new cases continues to fall, the growth rate outside of China accelerated this week, with major outbreak emerging in South Korea, Italy, and Iran.
"COVID-19 is arguably the biggest risk to global growth since the Great Recession," warned Platts Analytics in a recent update. "The rolling geographic nature of the virus's spread means its duration could be extended into the second quarter."
Major stock indicies fell into correction territory with the S&P 500 closing Friday down 11% from week-ago levels.
Copper prices in China broke Yuan 45,000/mt ($6419/mt) support on Friday as the market worried over coronavirus' reach beyond China, while demand in the domestic market remained low.
Authorities in northern Italy have ordered the closure of schools, bars and other public spaces until March 1, and has imposed strict quarantine restrictions in two northern "hotspot" regions close to Milan and Venice, with about 50,000 people prevented from entering or leaving 11 towns between Veneto and Lombardy for the next two weeks.
PRICES
Oil
LNG
- The Platts JKM, the LNG price benchmark for the Northeast Asia region, was up 8 cents at $3.125/MMBtu Friday, climbing 3.3% on the week, while still down 25% from January 20.
- The Platts FOB Gulf Coast LNG price edged up 4 points to $2.169/MMBtu on Friday, up 3.2% on the week but still 20% under January 20 levels.
Shipping
- The West Africa to East route for VLCCs was assessed at $18.01/mt Tuesday, down $9.91 since January 21.
- The Arab Gulf to China VLCC route was assessed Tuesday at $10.94/mt, down $9.06 since January 20.
- Fujairah delivered marine fuel 0.5%S tumbled $5/mt day on day to hit a fresh record low of $415/mt Friday
- The Shanghai delivered marine fuel 0.5%S price declined $90/mt week on week to be assessed at an all-time low of $425/mt Friday.
Metals
- The front-month rebar futures contract on the Shanghai Futures Exchange closed at Yuan 3,390/mt Friday, down 8.3% from January 20.
- Platts assessed the 62% Fe Iron Ore Index at $83.90/dry mt CFR North China Friday, up $1.25 from its February 3 nadir, but still down 12% from January 20.
- The London Metal Exchange three-month copper price ended Friday at $5,596.00/mt, down $43 on the day and nearly 11% from January 20. Copper is often seen as a barometer for global economic health.
- The most liquid copper futures contract listed on Shanghai Futures Exchanges closed at Yuan 44,390/mt ($6332/mt) Friday, the lowest since December 2016.
TRADE FLOWS
Oil
- S&P Global Platts Analytics has adjusted its 2020 global oil demand growth outlook down to 860,000 b/d, marking the weakest since 2011. Asian refined products demand is expected to grow by 380,000 b/d in 2020, its weakest since 2009.
- Key international airlines have suspended or reduced flights due to the virus, reducing jet fuel demand. United Airlines and Delta this week extended route modifications beyond China, while IAG, the parent company of British Airways, Iberia, Aer Lingus and Vueling, Friday said it would significantly cut capacity on its routes to and from Italy in March and would announce further capacity cuts soon.
- While Sentinel Midstream's Texas GulfLink deepwater crude export terminal project remains on schedule, the spread of the virus comes just as the company is trying to nail down contracted shippers and buyers, especially in Asian markets, putting talks on hold.
- The Port of Corpus Christi expects February crude exports to slip from January's record-high 1.38 million b/d due to ripple effects from coronavirus.
- European refiners are starting to cut runs and alter their refining yields as middle distillate margins sink.
- 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.
- Refinery run rates at China's state-owned oil giants - Sinopec, PetroChina, CNOOC and Sinochem - fell to a record low 67% of nameplate capacity in February, from 85% in January. Run rates for independent refineries in Shandong plunged to 35-36% from 63.5% in January, with 15 refineries idle in February.
- With Asia's crude buying curtailed while the region tackles the outbreak, more oil from West Africa is being offered in Europe.
- OPEC still planning to meet in Vienna March 5-6, but is monitoring situation after coronavirus case was reported there. A technical committee February 7 recommended deepening the OPEC+ 1.7 million b/d production cut accord by 600,000 b/d through the end of Q2. Russia has yet to endorse the plan.
LNG
- LNG suppliers are reaching out to potential alternate buyers in Asia and Europe to sell cargoes diverted from China following the outbreak.
- According to Platts Analytics, global LNG loadings remain at 1.53 Bcm/d, while cargo discharges have been at 1.37 Bcm/d over a 30-day period, making the mismatch between supply and demand an increasingly untenable situation.
- China's state-owned CNOOC has declared force majeure on LNG contracts.
- China's National Development and Reform Commission said it will reduce domestic natural gas prices to help companies restart operations, potentially reducing profit margins for gas importers and further slowing their LNG imports.
- Indian LNG importers capitalizing on the lower spot LNG prices and distressed cargoes, have so far issued tenders and procured almost 67 cargoes, amounting to about 4.3 million mt, to be delivered during the year, Platts data showed.
- Vitol CEO Russell Hardy has questioned the economics of US LNG exports in light of price declines.
- Several US developers have delayed final investment decisions, with one warning it was running out of cash to continue normal operations.
- Houston-based Cheniere Energy, which has a supply contract with PetroChina, said difficulty in securing new long-term supply purchase agreements could pose headwinds to advancing its Texas liquefaction project by June. Two LNG cargoes for April loading from Cheniere's terminals were recently canceled by customers.
Shipping
- Lack of storage space throughout southeast Asia has compelled several trading companies and cargo-holders to resort to floating storage, mainly on VLCCs, for up to six months in Singapore and elsewhere.
- According to the shipping industry estimates, at least 40 VLCCs are being used for floating storage near Singapore. Roughly half are loaded with fuel oil.
- 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.
- From Fujairah in the Middle East to the Asian bunkering hub of Singapore, traders are reporting sharp declines in fuel demand as shipowners brace for a potentially extended slowdown in global seaborne trade.
Metals
- Italy's steelmakers have not yet made any production cuts due to the virus and steel shipments have not been impacted.
- Major exhibitors such as German steelmaker Salzgitter have started to pull out of the flat and long steel Tube & Wire fair in Duesseldorf next month amid the spread of the coronavirus across Europe.
- Chinese steel production has slowed since early February due to weak demand and logistics constraints in receiving raw materials and delivering finished products.
- China's steelmaking giant Baowu Group said Q1 profit is expected down Yuan 2 billion-3 billion ($285-$427 million) year on year, steel production and sales expected down 5%, or by 1 million mt over the same period.
- Daily crude steel output by China Iron & Steel Association members fell 2.7% to 1.939 million mt/day over February 1-10 from 1.993 million mt/day in late January, latest CISA data showed.
- As of February 21, 73 blast furnaces operated by Chinese mills have been suspended, causing a daily pig iron loss of 21,000 mt, CISA data showed.
- S&P Global Platts estimates a reduction of at least 29 million mt in Chinese finished steel consumption in February, down 75% year on year and equating to pig iron consumption of 26 million mt. Finished steel consumption in March is estimated to fall by at least 22 million mt year on year, equating to 19 million mt of pig iron consumption, down 30% year on year.
- China's finished steel inventories at mills and spot markets are likely to reach 40 million mt by the end of February, up 24 million mt from the end of December 2019.
Agriculture
- Chinese bulk rice buyers have cancelled some recent orders from Pakistan due to logistical issues caused by the outbreak. Other buyers, such as Malaysia, have entered the market to replenish rice stocks and ensure sufficient supply in case of further issues.
