Thursday 28 Mar 2024
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KUALA LUMPUR (Feb 4): The coronavirus outbreak could curb oil demand growth if it continues to spread, leading to an extended production surplus as production grows in Brazil, Norway and the US, said Fitch Ratings.

In a statement Feb 3, Fitch said the surplus magnitude will depend on the duration of the outbreak and the ability of OPEC+ countries to adjust production levels, if required.

“We expect oil prices to remain highly volatile in 2020, with geopolitical tensions and economic sentiment being other key drivers,” it said.

Fitch said oil prices have been under pressure since the start of the coronavirus outbreak with Brent crude falling from just under US$70 a barrel in early January to about US$56/bbl in early February.

The ratings agency said that in a scenario of materially lower oil prices than assumed in its price deck and weaker market sentiment it could become more challenging for the 'B'-category oil and gas issuers to access capital markets, potentially resulting in a higher default rate in the sector.

Fitch said Asian refiners could see further softening of refining margins due to lower demand and utilisation rates.

It added that oil demand losses are difficult to estimate at this stage, but would come from a combination of reduced air travel, lower domestic road transportation and a longer-than-expected halt of manufacturing activities.

It said the Chinese authorities have extended the Lunar New Year holidays and quarantined about 50 million people living in the Hubei province, which remains the hardest hit.

Several other provinces have restricted inter-provincial travel and advised companies to remain closed for at least a week, it said.

Fitch said the impact on Chinese domestic oil products consumption will depend on how quickly transportation and industrial activities will return to normal levels.

“Demand for imported oil could take even longer to recover, as refineries, which were facing a capacity surplus before the outbreak, will need to absorb excess inventories.

“The WHO's declaration of a public health emergency of international concern could dampen China's trade activities and further reduce domestic fuel consumption, with a more tangible impact on global oil supply-demand balance,” it said.

 

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