New York — The coronavirus outbreak in China continued to rattle commodity markets Thursday, as the number of cases increased, as did quarantines, raising concerns of lower demand growth.
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Oil prices in particular have fallen over $3/b since Monday as the possible impact on jet fuel demand in particular comes into focus, recalling the impact of the Sudden Acute Respiratory Syndrome (SARS) virus on oil consumption 17 years ago.
The number of coronavirus cases rose to 639 in mainland China, and several cases have been confirmed elsewhere, including Singapore, according to a CNBC report. China has quarantined Wuhan and Huanggang, an imposed travel bans on at least seven cities.
While the short-term impact of the quarantines could be dramatic for local demand, they will likely have a beneficial long-term impact by limiting the spread of the virus, according to S&P Global Platts Analytics.
"A SARS-like virus spreading out of China would damage global oil demand to a greater extent than it did in 2003, due to Asia's much heavier weight in current global demand. Yet, luckily, this coronavirus outbreak appears to be less deadly than previous ones, which should significantly limit its impact on oil demand, currently estimated at no more than 150,000 b/d for the next two months," S&P Global Platts Analytics said.
"Significantly less oil than usual may well be consumed during the upcoming week of New Year's Festival celebrations in China. This is a period of particularly high demand because normally many Chinese travel during the holiday week," Commerzbank analysts Daniel Briesemann and Carsten Fritsch said in a report. "The oil products not needed in China could be exported, thereby increasing the already plentiful supply of gasoline and diesel on the global market."
**Demand for jet fuel may take a hit as Chinese authorities put greater emphasis on controlling flights in and out of several cities.
**The coronavirus currently has a mortality rate of 3%, below the 10% rate for SARS, and governments "have better technologies to contain the spread of the virus," according to S&P Global Platts Analytics. So it is likely that the Wuhan coronavirus could lower global jet demand by 50,000-150,000 b/d for the next two months.
**Platts Analytics estimated that in a "disaster scenario" where Wuhan coronavirus is as deadly and contagious as the 2003 SARS pandemic, global jet demand could fall by 650,000-700,000 b/d for about six months.
**Platts Analytics estimated that the SARS virus reduced global oil demand, led by jet fuel, by 230,000 b/d for around six months in 2003, primarily in the second quarter. However, global jet fuel demand has since grown by 47% to 7.11 million b/d, with "growth heavily concentrated in China, Southeast Asia, and South Asia."
**Wuhan City Council has suspended all public transportation services, including city buses, subway, ferry and coach. It also shut the city's airport and railway stations, effective Thursday.
**The Lunar New Year, which falls in either late January or early February each calendar year, is a major national holiday that marks one of the country's busiest travel seasons, when gasoline and jet fuel consumption typically spikes.
**China's apparent demand for jet fuel rose 7.3% year on year to 898,000 b/d during the first quarter last year, Platts Analytics' data showed. Apparent demand for the fuel in mainland China dropped around 35% on the year to 131,000 b/d in May 2003, Platts Analytics' data showed.
**The SARS outbreak reduced annual traffic of Asian airlines by 8% in 2003, compared to only 3.7% for North American carriers, implying that Singapore jet fuel prices weakened more than the European and US prices
**China's gasoline demand may also register a year-on-year decline in Q1 as the central Hubei province, where Wuhan is located, is considered one of the major transportation hubs along the Changjiang River.
**The jet market is currently subject to a number of bearish factors. It is in a period of low demand and the upcoming refinery turnaround schedule that usually tightens the market is expected to be smaller and more spread out than usual, limiting its bullish impact.
**ICE Brent front-month crude futures have fallen $3.16 since Monday to settle at $62.04/b Thursday, while NYMEX front-month crude futures have fallen $2.95 to settle at $55.59/b Thursday.
**Crude futures tumbled in early 2003 on the demand impacts of SARS. ICE Brent futures fell below $24/b in April 2003 from roughly $34/b in early March.
**However, it is worth pointing out that crude futures were already under downward pressure following the September 11, 2001 attacks in the US, and other terrorist attacks in 2002. Brent futures spent most of 2002 below $30/b.
**Jet crack spreads against Brent crude have weakened in recent days. The Singapore jet/kero crack spread ended Thursday at $10.46/b, up from $10.25/b Wednesday, but down from $11.34/b Monday, S&P Global Platts data shows. The Rotterdam jet/kero crack ended Thursday at $13.82/b, down from $14.17/b Monday.
**However, Singapore prompt jet/kero price differentials have strengthened in recent days, suggesting there is little concern in the spot market so far about a lack of demand. The Singapore jet/kero spread to Mean of Platts Singapore was assessed by Platts at a 48 cents/b premium Thursday, up from a 42 cents/b premium on January 17.
**No impact has been seen to jet spot market price differentials in Europe and the US.