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Spread of Coronavirus and Its Effect on Energy Market - Yiğit Mert Yüreklitürk

Since middle of December 2019, Coronavirus (COVID-19) and its spread over sphere is one of the main concerns of global community. More than 25 countries reported that they possess patients with Coronavirus (COVID-19) and hereby halted their trade and travel relations with China. There has been 70000 confirmed cases of the epidemic and 10000 of them were recovered. In the meantime, death toll is sharply increasing day by day, as it reached 1669 in little over a month. Past week, Europe gave its first loss to the virus in Paris, as an elderly Chinese tourist had died of a lung infection due to the coronavirus.

Nevertheless, Chinese authorities does not seem worried about the effects, as they claim the epidemic will be over soon. Yet, the quarantines over Wuhan and many other cities (especially commercial towns with ports) of China affect more than 60 million people in the country. Further, having a lockdown on travel and cities, puts trade tankers, flights, industrial and economic growth on hold not only in China, but in the world due to the fact that China is the 2nd largest economy in the world ( after USA) and has a population of 1.5 bn.

Thus, in the past few months, Coronavirus (COVID-19) proved to have a severe impact over trade, but especially over the energy market. Cargo ships are piling up outside ports full of undelivered commodities; oil and petrochemical refineries are scaling back operations due to declining demand for their products; Chinese consumer spending is experiencing a record low level in the last decade; and supply chains worldwide are entrapped. A quarterly contraction in demand for the fuel, which would be the first since the 2008-09 global financial crisis, is expected to lead to weaker annual growth — down by 30 per cent from previous estimates.

China’s industrial energy demand in 2020 may decline by as much as 73 billion kilowatt-hours (kWh), as the outbreak of the virus has sharply reduced the factory output and caused a power vacuum in the work force due to workers being quarantined and isolated. The cut represents about 1.5 percent of industrial power consumption in China. But, as the country is the world’s biggest electricity consumer, the loss is equal to the power used in the whole of Chile and it illustrates the scope of the disruption caused by the outbreak.

Just a few weeks after the outbreak of the virus, daily Chinese oil demand is already down 20 percent because of dwindling air travel, road transportation and manufacturing. Additionally, China being the biggest oil importer in the world and consuming 13 of every 100 barrels of oil the world produces; oil companies all around the world are staggered. Crude oil prices dropped 12 per cent over the last month. This kind of a drop is dangerous, especially for US oil companies, as some producers could lose as much as 60 percent of their profits due to higher costs of shale fields. Furthermore, newly signed 300 bn. USD trade deal, which was criticized even before the virus for having unrealistic goals about energy trade between USA and China, is in jeopardy. As the situation with virus continues, China will be probably withdrawing from this deal, leaving oil and natural gas production in uncertainty.

As it stands, Coronavirus (COVID-19) seems to will be hitting a harsh blow to energy market during 2020. Already being in economic recession, having a discrepancy or volatility in the energy market as well might cause world to witness drastic changes in geopolitics. Because experiencing variety on changes in a short amount of time simplifies turning status quo upside down.


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