Published: Sat, February 15, 2020
Markets | By Otis Pena

Opec chops global oil demand growth forecast over China virus

Opec chops global oil demand growth forecast over China virus

Oil prices were trading Friday without much change as the coronavirus epidemic that emerged in China continues to keep global oil demand low.

Experts believe West Texas Intermediate crude could fall to as low as $46-$47 a bbl on the NYMEX, and Brent could fall below $50 a bbl if the situation in China does not improve, and if the virus spreads to more countries. China is the largest importer of crude oil in the world, and the second largest economy after the US.

Chinese demand had been expected to stay flat in 2020, but the virus epidemic has thrown this prospect into doubt. But the coronavirus has slammed demand, forcing the cartel to consider even deeper reductions in output.

Recent reports claim the committee had recommended reducing production by another 600,000 bpd, but OPEC is yet to take a call on it.

This story was first published on CNN.com, "The coronavirus will cause global oil demand to shrink for the first time in a decade".

"Oil prices appear to have stabilized this week on optimism that OPEC+ will once again do whatever it takes to tighten output and on hope that the coronavirus peak is nearing", said Edward Moya, senior market analyst at OANDA in NY.

With markets hoping for OPEC+ to either deepen or extending oil output cuts, the WTI extended its rebound and rose above the $52 mark for the first time in February.

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The Opec oil cartel on Wednesday lowered its forecast for growth in global oil demand this year by almost a fifth due to the impact of the coronavirus outbreak in China.

Instead, it said the Covid-19 outbreak will affect 435,000 barrels per day (Bpd) of crude demand in the first quarter, compared to the same period a year ago. It additionally made massive cuts of over 0.5 proportion factors to its forecasts for China's buying and selling companions within the area, in addition to the USA and Russian Federation.

Demand worries flipped the oil market into a contango last week, a market structure where prices for near-term contracts are lower than those for later contracts, indicating ample supplies.

While the IEA still expects demand for oil to grow for this year as the outbreak is contained, it slashed its forecast for the increase in global consumption by almost a third to 825,000 barrels per day, the smallest increase since 2011.

"OPEC produced significantly above this demand in January. The 1.7 mln bpd cut in December is already priced in", said Jateen Trivedi, a senior research analyst at LKP Securities.

Meanwhile, Kuwait and Saudi Arabia will resume oil production from their shared fields this month, more than five years after a dispute halted supply.

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