Estimates of China’s demand for crude oil in 2020 are being revised downwards due to the Covid-19 (Coronavirus) outbreak. Expectations of a fall in trade are rippling through the boardrooms of tanker owners and operators
The International Energy Agency’s (IEA) February 2020 oil market report states that crude oil demand is now expected to fall by 435,000 b/d year-on-year in Q1 2020, the first quarterly contraction in more than 10 years. The IEA notes that Chinese crude oil throughputs for Q1 have been cut by 1.1M b/d and are now expected to contract by 0.5M b/d year-on-year.
The slowdown in Chinese uptake of crude oil from the Middle East, North Sea and West Africa is already evident in tanker sailings. The effect of the seasonal Chinese New Year slowdown in tanker tonne-mile demand (one tonne of cargo multiplied by nautical miles travelled) has been multiplied by the coronavirus. Large tanker tonne-mile demand into Chinese ports has dropped to virtually zero from a 2019 average of 3.42Bn tonne miles per day, reports VesselsValue (see graphic).
Storage tanks in crude oil import terminals are near full capacity, according to Reuters new agency. This is reducing the call on crude oil imports and some China-bound VLCC cargoes are being diverted. According to one broker report, Dynacom-operated VLCC Ioanna sailed from Venezuela to China but the cargo is now being diverted elsewhere. The VesselsValue tracking service shows the vessel having reached China but left without apparently discharging.
VLCCs awaiting discharge could be running up demurrage charges, Chinese crude oil importers may declare force majeure and this will also have implications for trade insurance. Brokers also report that COSCO newbuildings are absorbing China-bound crude oil stems from the Middle East leaving little work for independently operated VLCCs into March.
One worrying sign is Singapore has reported a worker at Shell’s giant Palau Bukom refinery has contracted the Covid-19 coronavirus. There are fears Singapore’s close-knit shipping community could be temporarily weakened and operations diverted to other shipping centres. There are also reports shipbuilding is slowing down in China because internal transport is restricted and workers are unable to return to the shipyards and the liner shipping industry is suffering a shortfall in calls to Chinese ports.
Overall, it is still too early to put figures on the slowdown in demand for tanker services, but companies should prepare to experience a drop in revenues. By Q2 2020, the picture should be clearer.
Hear the opinions of the experts on the impact of the coronavirus on the tanker trade at the inaugural Tanker Shipping & Trade Conference, Americas on 15-16 April 2020 in Houston, Texas, USA