Coronavirus persists, highlighting OPEC’s reliance on oil demand from China

Coronavirus persists, highlighting OPEC’s reliance on oil demand from China

  • The falling oil demand from China, the second-largest importer of the commodity, has exposed the level of reliance on the market by The Organization of the Petroleum Exporting Countries (OPEC).
  • Sources indicate China imports more than 75% of its oil from OPEC and Russia.
  • JBC Energy firmly believes that OPEC has no choice but to institute further supply cuts failure to which the commodity’s price may plunge further if no solid ground is covered towards solving the Coronavirus challenge.

Weeks after the Coronavirus outbreak, markets are still gripped with fears, triggered by stalled business operations in China, even as the government fights to contain a virus that has so far claimed more than 500 lives. The dwindling oil demand from China, the second-largest importer of the commodity, has exposed the level of reliance on the market by The Organization of the Petroleum Exporting Countries (OPEC).

JBC Energy, a research company, told AFP news: “China has become increasingly important for OPEC countries in recent years.”

Official data shows that China imports more than 75% of its oil from OPEC and Russia.

Owing to a sharp drop in demand and prices, OPEC and affiliate members including Russia, are meeting this week to try and find a solution to a menace that seems to be spreading to international markets. The gathering is set to come to a close today, with a raft of measures expected to be put in place to prevent further price falls.

 This week’s meeting, unlike last year in December when output supplies were discussed, is not a formal one as it was only convened on a need-basis following the Chinese demand crisis.

OPEC’s leading producers are Saudi Arabia and Russia and are the largest suppliers of crude oil globally. That notwithstanding, almost all oil-producing countries are being affected by the slump in Chinese oil demand.

Commodities research group Wood Mackenzie’s analyst Yujiao Lei said: “China is the world’s second-largest oil-consuming country, contributing 13 per cent of global oil demand. As a fast-growing economy, more than one-third of global oil demand growth comes from China.”

“Without sufficient domestic supply, China’s oil dependency keeps rising, which makes China one of the most important markets for OPEC,” Lei added.

But Saudi Arabia sought to assure the world this week that China’s reduced demand is having an “extremely limited” impact on the global markets as it is only “driven by psychological factors”.

However, JBC Energy believes that OPEC has no choice but to institute further supply cuts failure to which the commodity’s price may plunge further if no solid ground is covered towards solving the Coronavirus challenge.

Since January this year, oil prices have dipped about 15% following a US$55 and US$50 drop respectively in Brent North Sea and WTI benchmark contracts.

By Damian Wood
As an experienced trader, I work for myself managing my own small portfolio and also contributing on several investment news sites. I mix my passion for the industry and journalism to bring my readers informative and trustworthy articles.

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