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In their latest client note, the analysts at Australia and New Zealand Banking Group (ANZ) note that they see a small impact of coronavirus outbreak on commodity demand, in particular, oil for transport.

Key Quotes:

“China’s crude oil demand was around 5.4mb/d in 2002. It plateaued H1 2003 when travel restrictions were at their greatest. However, demand for jet fuel was hit hard.

Growth in demand was at 26% in 2002, but fell to only 4% during 2003. before returning to 28% the following year. Jet fuel in China has a relatively small market share of around 3%, which equates to approximately 170kb/d. Demand for road transport fuels (diesel and gasoline) held up relatively well.

Hubei is a smaller manufacturing center than Guangdong and is focused on pharmamedical and technology sectors, so the use of distillate (diesel) fuel is likely be lower.

In any case, we would expect China’s oil demand to be relatively unaffected. During the SARS epidemic, the WHO and various countries recommended travel bans, which had an impact on global oil demand. World oil demand hit 80.8mb/d in Q1 2003, but then fell to 78.4mb/d in Q2. When seasonal demand is factored in, the fall was even smaller. Demand actually rose nearly 1% y/y.

When SARS hit in 2003, Chinese outbound visitors totaled 20m. That number is now over 170m. In the ASEAN region, Chinese tourists make up about 22% of total inbound passengers. Jet fuel demand in Asia was approximately 2.7mb/d last year. If the current outbreak worsens and Asia experiences a 75% reduction in Chinese visitors, regional jet fuel demand would drop by 400kb/d.

Therefore, crude oil demand could drop by up to 500kb/d. Even so, we would expect demand to rebound quickly after travel restrictions are lifted.”