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Published:Thursday, April 09, 2020 2:57 PM

COVID-19 OUTBREAK IMPACT ON GLOBAL & INDIAN OIL & GAS MARKET: 2020

COVID-19 OUTBREAK IMPACT ON GLOBAL & INDIAN OIL & GAS MARKET: 2020

The 2019–20 coronavirus pandemic is an ongoing pandemic of coronavirus disease 2019 (COVID-19), caused by severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). The outbreak was first identified in Wuhan city in China, in December 2019. Later Wuhan province of china became the epicentre of the pandemic which led to complete lock down in the city & quarantined other places. The World Health Organization (WHO) declared the outbreak to be a Public Health Emergency of International Concern on 30 January 2020 and recognized it as a pandemic on 11 March, as on 3rd april 2020, more than 1,016,310 cases of COVID-19 have been reported in over 202 countries and territories, resulting in approximately 53,236deaths across the globe.  

The U.S is a highly affected country with having highest number 245,373 of COVID-19 confirmed positive cases with total deaths of 6,095 followed by Italy with 115,242 positive cases with total deaths of 13,915 as on 3rd April 2020. As there is no cure yet for the deadly spreading virus, to prevent the transmission governments across the nations are no left with options except curfews, lockdowns & quarantine. These lockdowns across the globe hit not oil & gas industry but every other businesses which is leading to the economic slowdown.
 
Implications of COVID-19 Outbreak at Glance
 
 
Global Crude Oil Price Movements Amid Covid-19 Outbreak
 
 
Global oil price dropped drastically after the world wide spread of coronavirus which led to public health emergency across the globe. Average price of Brent crude & WTI during February month was USD 50.52 & USD 44.78 respectively. Crude oil price fell sharply as pandemic spread on folded rate across nations during march. Average price recorded lowest at USD 20.4 for WTI crude & USD 22.8 for Brent crude oil.   The OPEC Reference Basket (ORB) value fell sharply in February, tumbling by about $10, or 15%, month-on month (m-o-m), to settle at an average of $55.49/b, its lowest since September 2017. The ORB dropped further in March, to close at $34.71/b on 9 March. Similarly, ICE Brent fell in February by $8.20, or 12.9%, to average $55.48/b, while NYMEX WTI declined by $6.99, or 12.1%, to average $50.54/b. In March, futures prices tumbled about 25% in one trading session on 9 March, recording their biggest daily decline in nearly 30 years, with ICE Brent and NYMEX WTI settling respectively at $ $34.36/b and $31.13/b. The price of crude will remain volatile as cure for the coronavirus is yet to be discovered.
 
Global Crude Oil Demand & Supply
 
Global Oil Demand
 
Global oil demand growth in 2020 is also adjusted lower by 0.92 mb/d to 0.06 mb/d, reflecting deliberate global economic growth allied with a wider spread of Covid-19 further than China. The impact of the Covid-19 outbreak in China and its adverse effects on transportation and industrial fuels were the leading causes of this downward revision. In addition, the outbreak is also assumed to severely affect oil demand growth in various other countries and regions outside China, such as Japan, South Korea, OECD Europe and the Middle East, which has led to a downward revision in those regions as well. Total global oil demand is now assumed at 99.73 mb/d in 2020 with higher consumption expected in 2H20 than in 1H20. In the OECD, oil demand was revised lower by 0.32 mb/d mainly due the effect of Covid-19 on various countries in OECD Europe and OECD Asia Pacific. Most of that downward revision is concentrated in 1H20. Additionally, a warmer-than-expected winter in the Northern Hemisphere has capped heating fuel requirements. In non-OECD, the 2020 oil demand projection was adjusted sharply lower, mainly in China and Other Asia, amid the outbreak of Covid-19 and its subsequent impact on transportation and industrial fuels. Other countries in Other Asia, such as Singapore, Thailand, Malaysia and the Philippines, have been revised lower reflecting the limitation in industrial and transportation fuels. Non-OECDoil demand was revised lower by 0.60 mb/d in 2020 with most of the downward revisions appearing in 1H20.
 
 
Global Oil Supply
 
For 2020, the non-OPEC oil supply growth forecast is revised down by 0.49 mb/d to 1.76 mb/d. Production is revised up mainly for Russia, Thailand, Indonesia and Oman, while the US, China, Mexico, Colombia, Norway, Azerbaijan and Malaysia are revised lower. US liquids production growth in 2020 is revised down by 0.36 mb/d to 0.90 mb/d, y-o-y. OPEC NGL production in 2019 is estimated to have grown by 0.04 mb/d to average 4.80 mb/d and for 2020 will grow by 0.03 mb/d to average 4.83 mb/d. In February, OPEC crude oil production dropped by 546 tb/d m-o-m to average 27.77 mb/d.
 
Product markets in February lost ground in the Atlantic Basin. In the US and in Europe, the middle of the barrel weakened, in particular the jet fuel segment, caused by aviation transportation disruptions as Covid-19 spread beyond China. In Asia, hefty refinery intake cuts and robust product exports provided support, offsetting demand-side pressure as Covid-19 strongly affected fuel consumption. High sulphur fuel oil crack spreads jumped in Europe and Asia, and increased to reach positive levels in the US, after remaining in negative territory in the previous four consecutive months.
 
Top-5 Consumer Amid COVID-19 Lockdown
 
United States
 
U.S is the largest affected country with 245,373 positive cases with total deaths 6,095 as of now. US oil demand will be affected by the Covid-19 outbreak. The rising number of cases in countries outside of China poses substantial downside risks for 2020 world and US oil demand growth. Risks would point furthermore to the downside should the Covid-19 evolve into a pandemic. Consequently, the US 2020 forecast risks are also skewed to the downside, as the Covid-19 outbreak appears to be spreading in major states, with number of states declaring state of emergency. The overall US rig count declined by 248 units, or 24%, y-o-y to 790 rigs in the week ending 28 February. Out of 790 active rigs, 767 rigs were onshore and 22 rigs were offshore. US oil rigs dropped by 165 units, or 19.6% y-o-y to average 678 rigs. US crude oil production in 2020 was revised down by 0.23 mb/d and is now forecast to average 12.89 mb/d, representing y-o-y growth of 0.66 mb/d. Tight crude oil production is forecast to grow by 0.62 mb/d, primarily in the Permian Basin to average 8.32 mb/d. Oil production from offshore fields in the GoM is expected to grow by 0.10 mb/d to average 1.99 mb/d. Lower 48 onshore non-tight crude oil production, including from Alaska, is forecast to decline by around 0.08 mb/d to average 2.58 mb/d.
 

 
China
 
The economic impact of the Covid-19 outbreak has exceeded the Severe Acute Respiratory Syndrome (SARS) epidemic of 2002-2003 and the effect is expected to further drag down economic growth in 1Q20 before possibly rebounding slightly in 2Q20. China’s annual GDP growth for 2019 was 6.1%, the slowest pace in 29 years, yet it achieved the government's target of 6.0–6.5%. Although the phase one trade deal with the US eased trade tensions and increased business optimism, this support was not long-lived as Covid-19 has completely overshadowed the short-term economic outlook. Private consumption growth is under extreme pressure due to people staying home to avoid infection, reduced work hours and the lockdown of affected regions. Furthermore, it appears that supply chain-related disruptions might increase the negative impact on China’s economy and trade partners compared to SARS.

Wuhan Lock Down Impact- Wuhan is one of the highest populous city in china which is also transportation & IT hubas well. Wuhan consists of 3 national development zones, 4 scientific and technologic development parks, over 350 research institutes, 1,656 hi-tech enterprises, numerous enterprise incubators and investments from 230 Fortune Global 500 firms – permitting the city to offer worldwide competitive strengths in most business fields.
 
 
Japan
 
Oil demand in Japan fell by 0.42 mb/d. This marks the largest monthly decline since 2016. The decrease is a result of lower requirements for all main petroleum product categories and is in line with downward adjustments to the country’s economy and warmer weather conditions.In addition to the already fragile state of the Japanese economy, the recent announcement that schools will close schools up to April because of Covid-19, combined with some supply disruptions, a worsening external environment and the decline in the asset market, the Japanese economy will face steep challenges in the near future. Japan’s crude oil imports in January fell by 275 tb/d, or around 9%, compared with the previous month to average 2.9 mb/d. Crude oil imports declined 9% or 301 tb/d y-o-y. In 2019, Japan’s crude imports averaged 3.0 mb/d, some 1% lower than in the year before. Saudi Arabia was the top supplier of crude to Japan in January, averaging 1.1 mb/d, representing a share of 36%.
 
The UAE held the second spot with around 32% followed by Kuwait with just under 11%. Product imports to Japan, including LPG, averaged 1.0 mb/d in January, representing a slight drop of 6% or 224 tb/d from the previous month. Declines were seen in LPG, gasoline and jet fuel, while naphtha and fuel oil increased. In 2019, total product imports averaged 896 tb/d, representing a decline of 80 tb/d or 8% compared with 2018.Meanwhile, product exports, including LPG, averaged 564 tb/d in January, representing a drop of 144 tb/d or 20% from the previous month. All major products saw declines, except LPG, which edged up slightly. Gasoline and gasoil led losses in volume terms, while jet fuel and kerosene were also lower. Japan’s product exports in 2019 averaged 609 mb/d, an increase of just over 11% over 2018.
 
India
 
India is 4th the largest consumer of oil & gas with having 2nd largest population in the world. Covid-19 is having a substantial impact on economic growth as Economic activities have been drastically reduced. So far, and considering the severe impacts of the virus in 1Q20 and possible extension into 2Q20 and beyond, both economic and oil demand growth projections have been impacted badly. The first case of the in India was reported on 30 January 2020, originating from China. As of 2 April 2020, the Ministry of Health and Family Welfare have confirmed a total of 2,069 cases, 156 recoveries (including 1 migration) and 53 deaths in the country.
 
On 22 March 2020, India witnessed a 14-hour voluntary public curfew at the persistence of the PM Narendra Modi. The government followed it up with lockdowns in 75 districts where COVID cases had occurred as well as all major cities. Further, on 24 March, the PM ordered a nationwide lockdown for 21 days, affecting the entire 1.3 billion population of India
 
 
Indian Oil & Gas Market Movement Amid Coronavirus & Impacts
 
 
Infraline View
 
COVID-19 has left a huge impact on the global economy witnessing excessive mortality across the globe. The deadly coronavirus is expected to continue the economic slowdown for the next few months and more as the cure is yet to be discovered. All the nations across the world including developed nations such as the U.S, UK, Russia, etc. are struggling to control the economic loss & bloodshed. China is claiming to be recovered from coronavirus 93% of the total infected people as of 3Rd April. Hence planned to end the lockdown of Wuhan city which was the epicentre of the virus in China. Global oil & gas demand is expected to remain low as the consumption of petroleum products decreased due to lockdowns across major cities in the world.
 
Upstream E & P companies are expected to witness a substantial loss in the coming months as well due to reduced crude oil and natural gas prices. LNG importers are requesting force majeure notice due to drastic changes in the demand. Refineries are decreasing their capacity & filling their storage. Downstream companies beheld reduced sales of ATF, HSD, MS due to travel restrictions. Indian downstream companies witnessed sudden growth in LPG demand due to panic buying amid lockdown. 
 
There are positive impacts seen on the environments & climate due to fewer human activities. Wild & marine animals are relieved due to lower pollution & population. There is no other way to fight with deadly except social distancing & self-isolation. 
 

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