The coronavirus is wreaking havoc on markets around the world as suppliers deal with both a shortage of supplies they can’t get from China and a glut of products they can’t move into the country or sell.
The energy market is among the worst hit. Oil producers and buyers try to be as precise as possible with how much product will be bought and sold so as to keep production and supply lines moving. The spreading epidemic has thrown that delicate balance out of whack.
The sharp fall in demand in China, the world’s largest importer of crude, is stranding oil cargoes off the country’s coast and prompting shippers to seek out other Asian destinations.
The price of Brent crude oil is down 15% since the beginning of the year.
Major international energy forecasters expect demand to fall in this quarter, the first drop in a decade, due to the outbreak.
Chinese refineries have cut output by about 1.5 million barrels per day in just over just two weeks, causing crude stocks to pile up.
Many Very Large Crude Carriers (VLCCs), capable of holding more than 2 million barrels of crude each, remain at China’s top crude import terminal of Qingdao, unable to offload their cargo because storage is filling up fast.
A Chinese refiner said:
“We are cutting runs, but we still have (crude) cargoes on the way.”
Kpler analyst Alexander Booth said:
“In theory, there is a lot of spare capacity to fill, but we have never seen this full utilization.”
China’s overall crude storage appears to be at 760 million barrels, just 20 million barrels shy of the peak reached last year.