Global oil demand is set to face its biggest contraction in a decade with growth for the first quarter expected to fall 435,000 barrels per day year-on-year, largely due to the impact of the coronavirus on the Chinese economy, the International Energy Agency said.
The Paris-headquartered agency joined Opec in paring down its full-year forecast for crude, trimming demand growth by 365,000 bpd to 825,000 bpd, according to its monthly report.
"There is already a major slowdown in oil consumption and the wider economy in China," the IEA said, adding "while the SARS epidemic of 2003 is widely used as a reference point for analysis of Covid-19, China has changed enormously since then."
SARS or Severe Acute Respiratory Syndrome refers to the epidemic, which also had similar origins in China and claimed 774 lives between 2002 and 2003.
The latest coronavirus, known as Covid-19, has so far exceeded the death toll from SARS claiming 1,355 lives as of Thursday. The number of infections is more than 60,000.
China's importance in the crude markets has also increased over the last decade, with its demand for crude more than doubling to 13.7 million bpd by the end of 2019 from 2003. The country now accounts for 14 per cent of the world's total demand for crude.
Beijing also accounted for two-thirds of oil demand growth last year. Its economy grew at the slowest pace in three decades as the country was caught in the middle of the trade war with the US, which depressed oil prices for much of the year.
On Wednesday Opec revised down its demand forecast for oil by 440,000 bpd for the first quarter as it factored in the impact on the oil markets from the widespread disruption to global supply chains from the spread of the coronavirus.
Oil demand is projected to average 99.95 million bpd in the quarter ending March, Opec said in its monthly oil market report.
The group, alongside non-members led by Russia, has been cutting back 1.7 million bpd from the markets since the beginning of January. The alliance, commonly known as Opec+, has dithered on action to stabilise oil markets, which have seen prices slide by nearly $10 from mid-January following fears over the continued spread of the virus.
The group's joint technical committee, which convened earlier this month, recommended extending the current restrictions until year-end, with a short-term deepening of cuts by 600,000 bpd until the second quarter. While Gulf producers have given their backing to the committee's proposal, Russia, the largest producer within the alliance has downplayed the impact of the virus and requested more time to arrive at a decision. Russian leader Vladimir Putin would make up his mind in a “timely manner” on whether to support deeper cuts, his spokesperson Dmitry Peskov told reporters in Moscow on Thursday.
Opec also revised down its overall assessment for oil demand growth in 2020 by 230,000 bpd to 990,000 bpd, citing the epidemic and its "impact on transportation and industrial fuels in China and other regions" as the main factors behind the correction. The total projected demand for crude in 2020 is expected to average 100.73 million bpd, with higher consumption expected in the second half of the year.
Demand growth revision for non-OECD countries led by India and China was steeper with Opec, revising its estimate by 150,000 bpd on the back of slower economic growth in both countries.
Demand growth from OECD countries meanwhile was expected to slide by 80,000 bpd mainly due a warmer winter in the Northern Hemisphere.
"The lowered forecasts from Opec and the IEA [International Energy Agency] on top of the news of more coronavirus cases is pressuring oil lower," said Jasper Lawler, head of research at London Capital Group. "The silver lining to all the bad news for the oil market is that it may force the reluctant hand of Russia to support Opec+ output cuts".
Brent was down 0.73 per cent at $55.38 per barrel at 12.51 pm UAE time, while West Texas Intermediate was up 0.41 per cent at $50.96 per barrel.