Saudi-Russian Alliance Is Strained as Coronavirus Saps Demand for Oil

In an interview, Bjornar Tonhaugen, head of oil market research at Rystad Energy, a research firm, said the 600,000-barrel-a-day cut being discussed was “quite a reasonable number.”

As OPEC ponders what to do, it faces a difficult calculation. The degree of impact that the coronavirus outbreak will have on demand for oil is not yet known, though it is expected to be substantial. Several Chinese cities have been seemingly shut down, with some factories idled and flights canceled.

The curtailment of economic activity will result in a major reduction of energy consumption — a huge concern for OPEC because China is the world’s largest energy importer and a key customer. Wood Mackenzie, a market research firm, figures that oil demand for the first three months of this year will be slashed by about 900,000 barrels a day, or nearly 1 percent of global consumption.

The effects of reduced energy use are already being seen in the market for liquefied natural gas, a chilled fuel used in industry and power generation.

Rystad Energy estimates that Chinese imports of liquefied natural gas fell 10 percent in January from a year earlier. Analysts say that with customers not needing as much fuel as they thought, Chinese buyers are trying to stop or reschedule shipments with some of them going to the extreme option of declaring force majeure — a legal term for unforeseen circumstances that invalidate a contract.

Article source: https://www.nytimes.com/2020/02/07/business/opec-russia-saudi-arabia.html?emc=rss&partner=rss