January 31, 2020 / 11:54 AM / 24 days ago

REFILE-Air travel fears due to coronavirus to sap oil demand

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By Noah Browning

LONDON, Jan 31 (Reuters) - A coronavirus outbreak in China could cut oil demand by over 250,000 barrels per day (bpd) in the first quarter of this year and drag on oil prices already beleaguered by oversupply, analysts and traders say.

The blow - equivalent to the capacity of a large oil refinery - will land mostly on demand for jet fuel in China, both the world’s top oil importer and one of the world’s fastest-growing aviation markets, as strict travel curbs limit domestic travel and international carriers shun the country.

“As preventive measures focus mainly on aviation and public passenger transport, jet fuel will be the most susceptible ... for Q1 2020, China’s oil demand could be reduced by over 250,000 bpd,” said Yujiao Lei of Wood Mackenzie, and the energy consultancy lowered its forecast for world oil demand by 500,000 bpd for the same period.

“The ongoing coronavirus outbreak will likely be a one-off event, with its effect on oil demand focusing mainly on jet demand principally in China and to a lesser degree in East and Southeast Asia,” she added.

The virus has spread to more than 9,800 people globally, surpassing the total from the 2002-2003 SARS epidemic and killing 213 people — all of them in China.

Several Chinese cities have levied strict travel curbs while global airlines have suspended or scaled back direct flights to China’s major cities.

Consultancy JLC said Chinese refinery activity had plunged by 15% in the last week, and a Chinese international trade agency said on Friday it would offer force majeure certificates for firms unable to meet contracts due to the virus.

The virus scare has already begun to warp crude oil and products markets worldwide.

Asian refining margins for jet fuel languished close to their lowest in 2-1/2-year, while asking prices for crude varieties from as far afield as Angola, once coveted in the Chinese market, fell to their lowest levels in around a year.

FGE energy estimated as much as 840,000 barrels per day in February, but the market appeared braced for an impact on the wider economy should efforts to contain the sickness fail.

“As the peak of the contagion has yet to materialise much uncertainty remains on the impact on China’s economy and global growth,” Fitch Solutions Macro Research wrote in a note.

“The impact on China’s economy will be material the longer the virus takes to abate.”

Reporting by Noah Browning, editing by Louise Heavens

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