The GERM Report

Crude oil prices edged lower in early morning trading after rallying some 3% in the previous session. The decline is in response to a report from the IEA that finds the coronavirus is having a major impact on the Chinese economy, the second-largest in the world. A new way of counting infections in Hubei province, the center of the viral storm, is adding to those concerns. Phil Flynn at The Price Futures Group said from Chicago that “markets are back on the defensive” as a result

Brent crude oil was down some 0.57% as of 8 a.m. EST to $55.48 per barrel. That follows a jump in crude oil prices Wednesday after reports suggested the spread of the coronavirus was slowing. That’s yesterday’s news in a market prone to turn on the latest tweet.

The IEA in its latest monthly report said it expected first quarter demand to fall some 435,000 barrels per day in what would be the first quarterly slump in more than a decade.

“The consequences of Covid-19 for global oil demand will be significant,” the IEA stated.

The IEA added that it assumes economic activity would return to “normal” starting in the second quarter. OPEC economists, however, trimmed 0.1% from their global GDP forecast, citing demand destruction from the coronavirus.

That demand destruction is already showing up in flows and storage. Data provider Refinitiv reports coal unloading in China so far in February is higher year-on-year, but slower than for December or January. Crude oil offloading in China clocked in at 8.9 million bpd over the first 12 days of the month, down some 790,000 bpd from the same period last year. There are, however, two full weeks left in February, so interim comparisons may be noisy.

Kpler, meanwhile, reports that Chinese crude oil imports “are quite stable” though inventories may be on the rise. Because of the timing, Kpler suggests the build in inventories is more about demand and less about opportunistic buying in the low-price environment.

We are still waiting for OPEC+ to decide on the appropriate steps to address the declining demand. Elsewhere, workers at a frack sand plant in Argentina took to the picket line on Wednesday on payment concerns. That could impact output from the Vaca Muerta shale, one of the more lucrative unconventional plays outside the United States. For Libya, the UN Security Council in a unanimous vote called for “a lasting ceasefire” to stem the violence in the protracted civil war. The Libyan National Oil Company said it was out some $1.4 billion from an oil blockade declared in mid-January. NOC reported crude oil production at 191,475 bpd as of Wednesday, a drop of roughly 80% from peak levels last year.