China oil demand has plunged 20% because of the virus lockdown

China oil demand has plunged 20% because of the virus lockdown”

Representatives of OPEC and its allies are expected to meet this week as calls grow for action to support oil prices.

OPEC's oil output plunged in January to the lowest since 2009 after several members led by Saudi Arabia overdelivered on a new agreement to cut production and as Libya's supply slumped.

Both energy components were down more than 20 percent from their January 6 peaks and would need to close below $55.21 and $50.61 to remain in bear market territory. The longer the lockdown in China and travel restrictions globally the greater the impact. The Asian nation is one of the world's biggest consumers of crude, which fuels its economy.

The impact in China has been more pronounced, reducing demand by around 1 million bpd, he added.

OPEC+ consulted with a Chinese ambassador as it conducted an urgent assessment of how the coronavirus may hurt oil demand, and what measures the group could take in response.

Meanwhile, referring to a debarkation of an abrupt annihilation of demand outlook, an analyst at Price Futures Group in Chicago, Phil Flynn said on Monday's (February 3rd) market closure, "We have not seen a demand destruction event of this scale that moves this quickly".

There is already some evidence the virus's outbreak is weighing on global growth.

The market is pricing in a 500,000 barrels per day average year-on-year loss in oil demand for 2020, all else constant (except for the positive impact of lower oil prices on demand), the Wall Street Bank said in a note dated February 3.

China is the world's largest oil importer, after surpassing the United States in 2016, so any change in consumption has an outsize impact on the global energy market.

The main catalyst for the sell off was the coronavirus, which has reduced demand for jet fuel because of the cancellations of more than 3,000 flights a day in and out of China, but also because of fears that the contagion could spread into the broader economy.

Margaret Yang from CMC Markets said the market is expecting production to be cut by a 500,000 barrels a day but: "We won't rule out an even deeper cut should the situation worsen".

Officials from the world's largest oil producers are meeting in Vienna, the headquarters of the Opec oil cartel, today and tomorrow to discuss the sharp slide in the crude oil price following the coronavirus outbreak.

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