China's thirst for fuel has substantially gone down after the coronavirus outbreak forced government officials to lock down cities and restrict non-essential travels. Based on the latest figures, China's current demand loss is now approximately 4 million barrels per day of fuel.
However, analysts citing data from Refinitiv Oil Research expect the country's crude oil imports to hold up well, slowing by just about 160,000 bpd in February, compared to import levels in January.
March may be the month with the weakest Chinese crude imports for 2020, also because a number of oil refineries usually set maintenance between winter and summer seasons.
Saudi Arabia, China's leading oil supplier and the biggest oil exporter in the world is expected to reduce its crude exports to China by around half a million bpd this month because of a major drop in demand in the midst of the current global health crisis.
Saudi Arabia is pushing for further reductions in oil output to help cushion prices in the face of sliding demand. The Kingdom proposes to bear most of a load of a broad cutback of 1 million barrels per day but wants Russia and other big oil players to join it. OPEC officials and their allies plan to meet next week.
Several factors account to lower Chinese crude oil imports for the month, but some other reasons also indicate that China's crude imports will not spiral out of control.
The country's demand drop is considerable as OPEC, IEA, and the EIA trim down their oil consumption growth outlook for the fiscal year by between 230,000-400,000 bpd and now anticipate this year's world demand growth at 1 million bpd or less.
In the US, many oil producers were already feeling the pinch under the financial pain of falling prices, due in part by oversupply as refiners analyze how to pump oil and gas with lesser cost than ever before. During the past five years, more than 200 oil companies have filed for bankruptcy after registering over $121 billion in debt, law firm Haynes and Boone disclosed.
UBS market strategist Giovanni Staunovo thinks that may not be enough to change oil's current trajectory in the near term. "I am not really sure this would be enough to alter the gloomy market sentiment," he said. Bernstein analyst Oswald Clint agrees that prices must be able to push higher, adding that an OPEC cut of 1 million barrels per day would be materially supportive.
If China can effectively contain the spread of coronavirus this month and financial regulators loosen their stimulus measures to help the economy, demand for fuel could start to normalize as early as April.