Oxford Economics has highlighted that the oil market has plunged as a result of the coronavirus, but its analysis reveals that demand should recover in the second half once the outbreak has been confined.
The report has outlined that the impact of the coronavirus on China’s economy has caused Oxford Economics to lower its global GDP growth forecast in the first quarter of 2020 to 1.9 per cent, and for 2020 to 2.3 per cent from 2.5 per cent.
Despite the weakened outlook for the market, Oxford Economics is forecasting that the knock-on effect on prices should remain confined to the first quarter only.
Daily Brent oil prices have dropped to $51.86 a barrel, a $1.54 decrease compared to February 10 when Oxford reported daily Brent was recorded at a yearly-low of $53.4.
Despite Brent oil prices falling in March, the report has predicted prices will gradually stabilise and recover in the second quarter of 2020.
While the full impact of the coronavirus outbreak on global economic activity and by extension on oil demand remains uncertain, Oxford expects the disruption to China’s economy will be large.
The report estimates China’s GDP growth will plunge to 3.8 per cent year-over-year (y/y) in first quarter of 2020, before rebounding in the second and third quarters, assuming the virus outbreak is contained.
For 2020 as a whole, Oxford Economic now expects China’s GDP to grow 5.4 per cent, compared with the previous 6 per cent forecast.
In face of negative demand and to keep a check on inventories, OPEC’s joint technical committee (JTC) in February recommended a temporary cut of 0.6 millions of barrels per day (mb/d) between March and June, and extending the current OPEC+ agreement into the rest of the 2020.
Following the recent sharp oil price falls, the risks to the price outlook have now shifted dramatically to the upside, pushing the balance into positive territory in 2020 to $8.6/b and in 2021 to $14.5/b in annual terms.
Due to the lower base in 2020 and the expected impact of the stimulus measures in China and elsewhere, Oxford expects year-on-year global oil demand growth in 2021 to rebound to 1.8 mb/d.
Oxford stated that this was well above its 10-year historical trend of 1.3 mb/d and 0.4 mb/d above its January forecast.