WEEKLY ENERGY RECAP: Trapped between two viruses, oil market faces double trouble

People wearing a protective facemasks walk on an overpass in Lujiazui financial district in Pudong in Shanghai on February 8, 2020. The new coronavirus that emerged in a Chinese market at the end of last year has killed more than 700 people and spread around the world. (AFP)
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Updated 09 February 2020

WEEKLY ENERGY RECAP: Trapped between two viruses, oil market faces double trouble

  • The deadly coronavirus outbreak in China has hurt short-term oil market demand

Oil prices continued to fall for a fifth week in a row and reached their lowest level in a year.

Brent crude dropped to $54.47 per barrel while WTI retreated to $50.32.

The global oil market now finds itself trapped between two viruses.

The deadly coronavirus outbreak in China has hurt short-term oil market demand and at the same time cyber-attack attempts on Saudi Aramco have also increased.

One threatens supply, the other demand.  However, the downward trend in oil prices is still ultimately about macroeconomics.

Despite such headwinds, the global oil market remains largely in balance as a result of the fourth year of efforts by OPEC+ to ensure it is so — even with a surge of oil supplies from unconventional resources.

Expectations of slowing growth in the global economy in the second half of 2020 should result in slightly lower crude oil demand. 

OPEC efforts to curb production still need to be unanimously extended, especially after Chinese oil demand dropped by about 3 million barrels a day, which is about a fifth of total Chinese refining capacity. Demand could fall further as storage capacity gradually fills, causing delays in discharging cargoes and leaving refiners, already under pressure from weak margins, facing hefty demurrage charges to compensate shipowners for delays.

The situation has also discounted crude oil barrels in the spot physical market.

For instance, the spot price premiums for Russian ESPO crude oil cargoes, the only barrels that arrive in China through pipeline, as the most popular crude grade for the independent Shandong “teapot” refineries have hit their lowest in five months.

The biggest impact was felt in China’s eastern Shandong province, which accounts for almost 20 percent of total Chinese crude oil imports. Here refining utilisation rates have fallen by half.

Such shrinking demand and weakening refining capacity from China has created fallout in the shipping industry as charterers are forced to pay penalty fees to ship owners for delays in unloading cargoes. This has caused tanker rates to tumble.


UK lends $22bn to small firms hit by coronavirus

Updated 27 May 2020

UK lends $22bn to small firms hit by coronavirus

  • The finance ministry offers banks a 100% credit guarantee on loans of up to $61,479
  • The money was lent to 608,069 small businesses as of May 24

LONDON: British small businesses have borrowed more than $22 billion under a government-guaranteed coronavirus credit program during its first three weeks of operation, outpacing bank lending under other schemes for bigger firms.
The finance ministry offers banks a 100% credit guarantee on loans of up to 50,000 pounds under its Bounce Back Loan Scheme, after an 80% guarantee slowed lending under an earlier program.
The BBLS has lent $22.74 billion to 608,069 small businesses as of May 24, up from $17.36 billion by May 17.
By contrast an earlier program that lends up to 5 million pounds, the Coronavirus Business Interruption Loan Scheme, has only lent $10 billion since its launch in March.
Banks have approved about half of loan applications under CBILS so far, compared with 79% for the BBLS.
Finance minister Rishi Sunak initially opposed offering full state guarantees for bank lending, due partly to the risk of bad debts, but allowed it for the smallest firms after pressure from business groups, legislators and the Bank of England.