- Demand for oil in China has taken a hit due to coronavirus.
- Economic activity slowed down, oil prices plunged by 14% in the last week of February.
- Fall in demand might delay Chinese refiners’ plans to boost VLSFO production.
- Profits averaging US$15 a barrel can be affected.
- Demand for bunker fuel in China is estimated to have fallen by 30-50%.
- Many companies continue to cut production through March due to a decrease in demand.
According to an article published in Riviera Maritime Media, demand for oil in China has taken a hit.
A slowdown in economic activity
As the coronavirus continues its march, economic activity slowed down, oil prices plunged by 14% in the last week of February.
Shipbrokers Poten & Partners said the Chinese Government’s travel restrictions have resulted in reduced global demand for transportation fuels. This follows news in February that Chinese crude oil demand forecasts were being revised downwards.
The Poten & Partners bulletin stated that the oil that has been showing up at China’s shores in recent weeks was bought many months ago and loaded on tankers in West Africa and the Middle East well before the coronavirus outbreak.
VLSFO production takes a hit
The fall in demand might delay Chinese refiners’ plans to boost VLSFO production which yielded profits averaging US$15 a barrel above Brent crude in February. In January, China issued an export tax rebate for bunker fuels which led to expectations that refiners would raise supplies of the fuel in 2020 and target sales to China’s large internal market.
China’s state refiners China National Offshore Oil Corporation (CNOOC), PetroChina and Sinopec exported VLSFO under the new tax regime, putting the oil into bonded storage in the ports of Dalian, Shandong, and Zhoushan.
A decrease in bunker fuel demand
In February, demand for bunker fuel in China is estimated to have fallen by 30-50% from the previous month. Chinese crude output has fallen by 1.5M barrels per day. In early February, Reuters reported that a PetroChina official indicated the company would continue to cut production through March as it did not foresee an increase in demand.
With regard to the oil that has been produced and loaded, Poten said most of this has either been delivered or is being stored.
Some vessels arriving in China in the last two weeks were fixed in late 2019 or early 2020 at high freight rates which included healthy demurrage rates. Poten said this meant some charterers will transfer the crude to a cheaper vessel and use the latter vessel for temporary floating storage.
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Source: RivieraMaritimeMedia
