As the government in the South American country of Guyana prepares to lift its first shipment of oil from the Liza Phase 1 Development, the largest demand shock the oil market has suffered since the global financial crisis of 2008 to 2009, and the most sudden since the September 11 attacks, is now unfolding due to the impact of the coronavirus on China’s demand.
Chinese oil demand has reportedly dropped by about three million barrels a day, or 20% of total consumption.
Bloomberg said in a report on Sunday this drop could force the hand of the OPEC cartel, which is considering an emergency meeting to cut production and staunch the decline in prices, which are headed for the lowest close in a year.
China is the world’s largest oil importer, after surpassing the U.S. in 2016. Bloomberg said in its report that any change in China consumption has an outsize impact on the global energy market. The country consumes about 14 million barrels a day — equivalent to the combined needs of France, Germany, Italy, Spain, the U.K., Japan and South Korea.
“There was some hope for the demand outlook this year before the outbreak, but that has been knocked off its block. OPEC+ has to react. If there are no further production cuts, there will only be more price losses,” said John Kilduff, a partner at Again Capital LLC in New York who has more than 15 years of experience in energy trading.
The Liza crude will be sold at Brent market price, the global oil benchmark, so fluctuations would have an impact on what Guyana and the Stabroek Block co-venturers ultimately get for their share of crude. The Government of Guyana will lift its first entitlement around mid February.
The price of Brent has fallen more than 10% since January 20, when financial markets first took notice of the magnitude of the health crisis in China.