China virus causes first drop in oil use in a decade: IEA

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Local residents wearing protective face masks amid fears coronavirus pass containers of petrol across a checkpoint in Vietnam. (AFP)
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A scanning and transmission electron microscope image of coronavirus released by the National Institute of Allergy and Infectious Diseases' (NIAID) Rocky Mountains Laboratories (RML). (NIAID-RML)
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Updated 15 February 2020

China virus causes first drop in oil use in a decade: IEA

  • Global demand ‘hit hard’ as contagion forces widespread shutdown of Chinese economy, says report

PARIS: Global oil demand will suffer its first quarterly drop in a decade as the COVID-19 virus lashes the economy in China and its impact ripples throughout the world, the IEA said.

“Global oil demand has been hit hard by the novel coronavirus (COVID-19) and the widespread shutdown of China’s economy,” the International Energy Agency said in its latest monthly report.

“Demand is now expected to fall by 435,000 barrels year-on-year in the first quarter of 2020, the first quarterly contraction in more than 10 years” when it dropped during the global economic crisis, it added.

While the IEA still expects demand for oil to grow for this year as the outbreak is contained, it slashed its forecast for the increase in global consumption by nearly a third to 825,000 barrels per day, the smallest increase since 2011.

The outbreak of the new coronavirus spurred China to take drastic measures such as placing in quarantine over a dozen cities and extending the Lunar New Year holidays in order to try to stem its spread, nearly shutting down key parts of its economy.

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Although markets have rebounded in recent days as investors grew confident that China could quickly contain the virus and its economic impact would be short lived, the IEA warned against complacency by comparing today’s crisis to the 2003 SARS outbreak.

“While steps taken in China to reduce its spread were adopted earlier than in the SARS crisis and have been far more extensive, the profound transformation of the world economy since 2003 means China’s slowdown today is bound to have a stronger global impact,” it said in the report.

The IEA noted that since 2003 China has become more integrated in global supply chains, its tourism sector has dramatically expanded and Chinese are the largest contingent of world tourists, and the country’s share of global GDP has jumped from 4 to 16 percent.

With it estimating that China’s international air travel having fallen by 70 percent and domestic travel by half in the early part of the crisis, the IEA expects double digit drops in jet fuel demand in the country.

A similar drop in diesel demand is expected due to other travel restrictions.

The IEA chopped its forecast for China’s GDP growth in the first quarter of this year by 1.5 percentage points to 4.5 percent. It also made large cuts of over 0.5 percentage points to its forecasts for China’s trading partners in the region, as well as the US and Russia.

The IEA doesn’t forecast changes in oil prices, but said consumers were unlikely to get much of a boost from cheaper petrol and diesel at the end of the day.

“The effect of the Covid-19 crisis on the wider economy means that it will be difficult for consumers to feel the benefit of lower oil prices,” it said.

With China being a big consumer of oil and the source of most of the growth in oil demand in recent years, the crisis will have a major impact on oil producers.

At the end of last year, OPEC and its allies including Russia, called OPEC+, agreed to further cuts in oil production in order to compensate for rising production in the US and avoid excess supplies that would depress prices.

They are now considering an additional cut of 600,000 barrels per day to compensate for the drop in demand due to COVID-19.

The IEA estimates that the demand for OPEC crude has dropped from 29.4 million barrels per day (mbd) in the final quarter of 2019 to 27.2 mbd in the first three months of this year.

It noted that this is 1.7 mbd below what what OPEC produced in January when the new production cuts came into force.


Dubai, Abu Dhabi governments ease burden of private businesses hit by coronavirus

Updated 58 min 47 sec ago

Dubai, Abu Dhabi governments ease burden of private businesses hit by coronavirus

DUBAI: The Dubai International Financial Centre (DIFC) in implementing a series of fiscal easing initiatives over the next three months starting April 1 to help all businesses operating in the financial free zone.

Under the conditional scheme, existing DIFC-registered businesses can take advantage of a 10 percent discount of renewal fees for their licenses, while new registrants will have their annual licensing fees waived during the next three months.

The DIFC will also allow deferred payments for all properties owned by DIFC Investments for a period up to six months, while property transfer fees would be discounted from between five percent to four percent for any related transaction during the three-month period.

“The transfer must be registered with the DIFC Registrar of Real Properties within 30 days following the expiry of the three-month period,” the DIFC said.

The free zone will likewise facilitate the free movement of labor in and out of DIFC between other free zones, provided employers have the necessary secondment arrangements in place and employees are recorded with registry services so they can access buildings and offices within the DIFC.

“The well-being of our community is of utmost importance. We are working continually to ensure all health and safety measures are implemented swiftly and effectively as directed by the relevant government authorities,” Arif Amiri, the DIFC Authority Chief Executive Officer, said.

Over in Abu Dhabi, the Abu Dhabi Department of Economic Development (ADDED) on Tuesday issued a circular waiving Dh246 million in penalties levied on private companies, boosting the stimulus package announced by the government earlier this month.

The waiver of penalties for economic licensing violations would benefit 72,242 private companies including SMEs in commercial and industrial sectors, the ADDED said.

The waived violations include fines for delay in license renewal amounting Dh240.98 million and violations related to practicing economic activities valued at Dh5.66 million.

Together with the stimulus package, the latest initiative would boost the “resilience of the commercial and industrial sectors” and enable the “private sector to adjust swiftly to global economic challenges,” the ADDED said.