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Headwinds seen for tanker market from impact of coronavirus on oil demand

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The tanker market could face short-term headwinds if the impact of the Wuhan coronavirus outbreak on China’s oil demand is similar to that of SARS in 2003, according to brokers Poten & Partners.

The coronavirus has led to a death toll of 26 with 830 infected in China, and a lockdown on 10 cities in Hubei province, including Wuhan, with a combined population of 60m.

The impact of the 2003 SARS virus is being used to model impact on the oil market, which can also be extrapolated to the tanker market. In its weekly market report broker Poten & Partners noted that in 2003 China imported less than 2m barrels per day (bpd) of crude oil compared to more than 10m bpd today, making it by far the largest global importer of crude oil.

“Any impact on Chinese/Asian oil demand is likely to be much more significant, not only in volume terms, but also in terms of oil import flows and the ripple effect on the tanker market,” Poten said.

Using SARs as a reference Goldman Sachs estimated that oil demand would be impacted 260,000 bpd with the oil price falling by $3 per barrel. Poten noted that the SARS virus pushed oil prices down by 20% and created significant fear and uncertainty.

“The oil market has already traded down as concerns about the coronavirus are mounting and although the tanker market remains strong, rates have started to weaken in recent days. Although these events are not necessarily connected, there is a common element: market psychology is turning negative,” the report said.

Much will depend on the spread of the virus over the coming weeks both in China and the wider region. In the last 24 hours Singapore has reported its first three cases of the coronavirus, all from people arriving from China.

Should the coronavirus follow the same pattern as SARS recovery in the economy and oil demand would be quick after the spread is halted.

“If the current crisis follows a similar pattern, we may see short-term headwinds followed by a strong rebound later this year,” Poten said.

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