Coronavirus Ripple Effect Hits Oil Exporters Large and Small

As a recent Rigzone article notes, the coronavirus outbreak has contributed to projections that China’s oil demand could drop by one-fifth this year – equating to two to three percent of global demand.

Noting that China accounts for roughly 30 percent of new global oil demand each year, The Economist Intelligence Unit (EIU) recently projected that the country’s slower gross domestic product (GDP) growth will have an outsized impact on oil prices in 2020.

Amid slackening Chinese oil imports, which major crude-exporting countries are most exposed?

“Russia and Saudi Arabia stand to see the largest nominal drop in exports related to slowing demand in China,” Cailin Birch, EIU global economist, told Rigzone, pointing out that both countries accounted for 20 to 30 percent of China’s oil imports in 2018-2019. “However, they also benefit from being two of the world’s largest oil producers, with fairly diversified oil markets.”

Commenting that major oil exporters will endure the coronavirus-enhanced demand decline, Birch said they will nonetheless feel the impact – particularly given the outbreak’s negative knock-on effects to GDP throughout Asia.

“For example, more than two-thirds of Saudi’s total exports went to Asia in 2018, with around 17 percent going to Japan and 16 percent to China, with smaller amounts going to South Korea, India and several other countries,” she explained.

Smaller oil-producing countries who rely more heavily on Chinese demand face an even greater threat, Birch added.

“Angola relies on China for around 60 percent of its exports, which is almost exclusively crude oil,” she observed. “Even a small dip in Chinese consumption therefore stands to have an outsized impact on Angola’s already-struggling economy.”

Given the U.S.-imposed sanctions on purchasing Iranian crude oil, Birch also noted the coronavirus ripple effect places an extra burden on the Islamic Republic.

“Under the current U.S. sanctions regime, China and Syria are the only two remaining buyers of Iranian oil,” she explained, adding that data from EIU’s Oil Adequacy Index has shown that Iranian oil shipments surged in late-January, which may have represented an effort by China to stockpile Iranian crude as the coronavirus pushes prices down.”

EIU’s Oil Adequacy Index is a metric that gauges the weekly net change in oil supply from OPEC, Russia and the United States and in global oil consumption.

“However, that surge in exports has tapered off in February, suggesting that Chinese supplies may now be comfortable,” Birch continued. “Oil exports – Iran’s only economic lifeline – could therefore slump in the coming weeks, adding yet more pressure to the country just as it undergoes a tense election process.”

To contact the author, email mveazey@rigzone.com.