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14/02/2020 17:47

Oil credits poised for short & sharp coronavirus crisis

[ET Net News Agency, 14 February 2020] Even as China discloses a surge in new
coronavirus cases, S&P Global Ratings believes its rated global oil credits will come
through this crisis quickly.
The credit rating expects that the huge size and ample ratings buffer of China's oil
majors will carry them comfortably through this event, while the international companies
will only be indirectly exposed through lower oil demand, according to a report published
today titled "Global Oil Credits Poised For A Short, Sharp Coronavirus Crisis."
S&P's Platts Analytics colleagues estimate that global oil demand in the best case will
drop by 2.5 million barrels per day (mbpd) in the first quarter. In the worst case, it
could drop by an almost catastrophic 4 mbpd in February.
In February 2020, both OPEC and the Energy Information Administration of the U.S. cut
their forecasts for global oil demand by around 0.4 mbpd for the first half of 2020.
Diminished Chinese demand would account for about half that drop. Both organizations
expect oil demand will return to normal in the second half of 2020, in China and globally.
China's weakened demand in the context of over-supply concerns has already triggered a
more than US$10/barrel price drop for Brent in the year to date. OPEC and Russia are said
to be considering production cuts of around 600,000 barrels per day in response.
"The evidence so far is that China's oil majors are managing this crisis well. Using
CNPC's latest data, the company's upstream operations remained stable during the Lunar New
Year," said S&P's credit analyst Danny Huang.
He noted that daily oil production was up 2.2%, year over year in the period 24 January
to 1 February 2020, with gas output rising 12.6% in the same timeframe.
The slide in short-term demand will hit the China majors' refining operations harder,
with Sinopec (00386) and CNPC most exposed. Oil's price slide will strain China's refining
margins in the first quarter.
International oil companies' direct exposure to the Chinese market is limited. CNPC and
Sinopec own most of the onshore, upstream projects. There is some foreign participation in
offshore projects but this has been declining as CNOOC (00883) has become more experienced
operating such projects.
In making any prediction about the impact of the health crisis on oil demand, it's
instructive to look back on China's experience with another coronavirus: severe acute
respiratory syndrome (SARS). That outbreak lasted between November 2002 and July 2003.
China now has a much larger economy, more international trade, more travelers, and much
more domestic cargo due to the explosion in online shopping.
However, it's reasonable to expect the new coronavirus will track a similar course to
SARS--that is, the economic impact will be sharp but short, as will be the effect on oil
During the SARS outbreak, China's oil demand was stagnant at 5.2 mbpd in the first half
of 2003. It rose rapidly--by 500,000 bpd--in the third quarter of 2003, after the SARS
outbreak ended. (KL)

Remark: Real time quote last updated: 02/04/2020 17:59
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