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The oil cartel on Wednesday said global demand will grow by 0.99 million barrels per day in 2020 to 100.73 barrels mb/d, down 0.23 mb/d from its January forecast.
“The main reason behind the oil demand growth revision and hence the demand for OPEC crude, is the outbreak of the Coronavirus and its expected impact on China’s oil demand and, by extension, global oil demand,” OPEC’s Monthly Oil Market Report said.
The outbreak, which has led to the quarantine of more than 40 million people in China and sickened about 45,000 people worldwide while more than 1,100 have died, has led to scores of businesses temporarily closing their operations in China and airlines to ground flights to and from the country.
“Evidently, the timing of the outbreak exacerbated the impact on transportation fuel demand in China, as it coincided with the Chinese Lunar New Year holidays, as millions of Chinese return home to celebrate with family members and friends, or travel abroad,” OPEC said.
As a result, OPEC lowered its 2020 global gross domestic product growth forecast by 0.1 of a percentage point to 3 percent and said China’s 2020 GDP growth will slow by half a percentage point to 5.4 percent.
Since topping out at $68.07 a barrel on Jan. 6, Brent crude oil, the international benchmark has plunged into a bear market, falling by as much as 21.7 percent.
Overall, OPEC member production fell by 509,000 bpd in January amid supply disruptions in Libya and Iraq. Saudi Arabia, meanwhile, didn’t cut the 500,000 bpd it promised, producing 400,000 barrels below its official quota, perhaps signaling that it is “not prepared to shoulder additional output cuts alone, as had been the case for much of 2019,” according to Franziska Palmas, assistant economist at the London-based Capital Economics.
Wednesday’s report comes after OPEC members and their allies, including Russia, last week were unable to reach an agreement to deepen production cuts. The group had been discussing possibly moving up its March meeting to February due to the demand destruction caused by the coronavirus.
OPEC, at its December meeting, agreed to reduce output by an additional 500,000 barrels per day through the first quarter. The cartel has cut production by a total of 1.7 million barrels per day since January 2017.
On Wednesday, Brent crude oil, the international benchmark, traded higher by 3.2 percent at $55.75 a barrel. Meanwhile, West Texas Intermediate crude oil, the U.S. benchmark, was up 2.8 percent at $51.35 a barrel after a weekly report showed U.S. inventories swelled by 7.5 million barrels, larger than the 3 million barrel build that was anticipated.