Flights canceled in Europe, schools closed in Japan, towns quarantined in Italy and panic in California. The coronavirus crisis has gone global, and with it, its impact on energy demand. For only the fourth time in almost 40 years, oil consumption may not grow at all in 2020, according to a growing minority of traders, investors and analysts. For OPEC, gathering in Vienna this week to discuss production policy, it’s a nightmare scenario likely to force the cartel into deep output cuts.
“I see no growth in demand this year now the Coronavirus is everywhere,” said Doug King, a hedge fund investor who co-founded the Merchant Commodity Fund.In interviews at the annual International Petroleum Week, a major oil-industry gathering in London last week, the mood darkened as outbreaks from Italy to Iran forced traders to re-evaluate the virus’s impact on the global economy. Fewer journeys to work, canceled vacations and disrupted supply chains all mean reduced demand for fuel. Now, in-house analysts at oil companies and commodity houses are sketching out scenarios that include a global pandemic and a significant contraction in global crude consumption — somethings that’s extremely rare.
Since 1984, oil demand has grown every year barring three occasions: 2008 and 2009, during the global financial crisis, and in 1993 as the U.S. recovered from recession. So far, the International Energy Agency anticipates oil consumption growth of about 800,000 barrels a day in 2020, a third less than forecast before the outbreak, and well below the 10-year average of 1.3 million barrels a day. But that outlook, based on containing the virus in China, was released on Feb. 13 and since then the crisis has taken a turn for the worse.
Commodity traders and oil companies have updated their internal forecasts since then, with some cutting 2020 demand growth to a range of 200,000 to 700,000 barrels a day, according to people familiar with the estimates. Further cuts are likely as the coronavirus spreads worldwide, the same people said, asking not to be named because the forecasts aren’t public.