Crude oil prices are seeing sharp declines to start the week as concerns mount about weaker demand in China due to the coronavirus. The unfolding crisis in the world’s second-biggest economy has one major investment bank seeing the potential for a further 13% price drop in the coming months.
Brent crude oil, the benchmark for world oil prices, saw its biggest single-day percentage drop since September, falling over 4%, in intraday trading on the Intercontinental Exchange. Prices for April delivery fell as much as $2.35 per barrel to a low of $54.27 before recovering to around $54.94 by mid-afternoon.
The spread of the coronavirus and its impact on China, the second-largest global consumer of oil, is the main culprit for the move. China consumed 13.6 million barrels per day of crude oil last year, compared with the U.S.’s 20.5 million.
While U.S. demand stayed largely flat last year, China’s demand rose 630,000 barrels per day, according to the International Energy Agency (IEA), accounting for nearly two-thirds of global oil demand growth in 2019.
This year, the IEA is forecasting an approximately 440,000-barrel-per-day increase in China’s demand.
China is also the world’s biggest oil importer, bringing in nearly 10 million barrels per day of crude, making it one of the most important drivers of the global oil trade.
But with much of the country now on an extended holiday as a way to limit the spread of the coronavirus, demand is likely to plummet.
Oil analysts at Citigroup cut their first-quarter outlook for Brent crude oil from $69 per barrel to $54 due to the lower demand. It said Brent crude prices could fall to $47.
West Texas Intermediate, the U.S. benchmark, saw a slightly smaller drop of 3% intraday in trading on the CME. Prices for March delivery fell to a low of $49.92 per barrel but have since picked up to $50.50.
China has been a major customer for U.S. crude oil, bringing in an average of 230,000 barrels per day in 2018. But since the start of the trade war, those exports have dropped to 131,000 barrels per day.
Middle East suppliers are the most exposed to China’s demand with Saudi Arabia shipping boosting sales to China 500,000 barrels per day last year. The Organization of Petroleum Exporting Countries is reported to be meeting over the next two days to formulate potential output cuts in response to weaker Chinese demand.