The coronavirus outbreak has brought one of the world’s largest economies to a standstill, and the oil and gas industry has already felt its impact, according to new analysis from IHS Markit.
Oil prices have felt some pressure following the spread of the virus, which was first discovered in China and has spread internationally in the past few weeks. The WTI was trading at $50.64 on Friday (7 February), a figure that represents a slight increase over the previous low of $49.61 on Wednesday but is still a 17% drop from the beginning of January. The Brent price made a similar recovery from Wednesday’s low, but is still more than 20% down from its 2020 peak.
In an attempt to contain the coronavirus, China issued what is reportedly the largest quarantine in human history, confining an estimated 45 million people.
IHS Markit said the economic effects of the outbreak have been most pronounced in household consumption and somewhat mitigated in the industrial sector because factories are seasonally idle during this period. However, this has been enough to make an impact. According to IHS Markit Energy and Natural Resources, China accounted for half of world oil demand growth in 2019, as opposed to one-third of demand growth during the SARS outbreak. In 2019 the country’s oil demand was 13.9 million bbl/d, or 14% of the global market; in 2003 its 5.6 million bbl/d equated to 7% of global demand.
The findings were released as part of an overall statement on the virus’s impact on the global economy. IHS Markit said the coronavirus will have a larger negative impact on global GDP than the SARS outbreak in 2003. At the time of SARS, China was the world’s sixth-largest economy, accounting for 4.2% of global GDP. Now it is the world’s second-largest economy, accounting for 16.3% of global GDP.
IHS Markit said that, if the current confinement measures in China stay in place until the end of February and are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8% in Q1 and 0.5% in Q2. If the confinement measures begin to life by 10 February, the impact on global GDP will be more limited.