(MENAFN- Gulf Times) Since the repercussions of the coronavirus Covid-19 pandemic, and the consequent decline in demand for oil and lower prices, everyone is asking when the global oil market will recover from the pandemic?
In this article, we will try to answer this question by monitoring the developments that affected the market, and future expectations, whether related to revenue losses or the size of the demand.
In this regard, we point out that the International Monetary Fund (IMF) indicated last week that lower prices and reduced production will severely harm oil exporters in the Middle East and North Africa, as the total oil income of these countries is expected to decrease by $270bn this year compared to 2019.
It is expected that the Gulf economies alone will witness a combined deflation of 7.6% this year due to the decline in oil prices and derivatives, which the International Monetary Fund expected at the end of June 2020. Analysis indicates that the oil sector will shrink sharply by about 7% and will be accompanied by a decline in the liquefied natural gas industry and manufacturing industries.
In June, China's imports of crude oil rose to an all-time high, with imports recording 47.97mn tons, or 11.34mn barrels per day.
The strength of oil purchase by the largest importer of crude in the world was one of the main reasons behind the ability of oil prices to return quickly from the lowest historical levels in April and escalate its price to about $40 a barrel.
However, after two consecutive months of increased purchases, China's imports of crude oil slowed dramatically in July, as crude oil exporters reported that the country's appetite for import had declined significantly in recent weeks.
Customs data from some 27 producing countries show that exporters were running 2.55mn barrels per day, or 22%, less than crude destined for China during the month of June.
And the decline in exports can be taken as a meaning of two things: The Chinese demand for oil is backwards again, perhaps because of the so-called second wave of Covid-19, or that the pace of buying crude was not as sustainable as it was before the pandemic.
The second option appears to be a healthier reason for the upcoming scenario and this is what encourages speculators to take some profits from the fluctuations in the price of oil. China's independent oil price sensitive refineries known as ‘teapots' also took advantage of the April oil price crash to stock up on cheap crude and sharply reduce purchases after crude prices recovered.
China imported a record 24mn barrels from Russia to load last June and the journey from the sea ports takes Russian Baltic about 40-50 days, which means that a lot of oil loaded in June would have reached the ports already.
And what some oil traders and suppliers are hoping for, is that Chinese teapot refineries are still heavily hungry for crude oil imports, if only to keep government licenses to import at a certain share.
Traders also noted the fact that imports by Chinese giants China National Petroleum Corp (CNPC), China National Petroleum Corp (CNOOC), and China Petroleum and Chemical Company (Sinopec) did not miss any opportunity to buy, store, and then refine cheap oil.
This, in turn, means that imports are likely to remain dull in July and may recover in September gradually. However, this optimism fails to explain the fact that these 'price-sensitive refineries make up more than a fifth of China's crude processing capacity.
With regard to the demand destroyed by the coronavirus pandemic, China successfully handled the second Covid-19 wave, and quickly took control of the situation within weeks and remains relatively stable.
Meanwhile, it is worth monitoring the yuan-denominated crude oil futures, which were launched in March 2018, because global interest is gathering even if it is slow. Challenges, however, remain that it does not become a global standard for imported oil to China.
Moreover, for the first time, industry sources said that BP has now officially become the first major international company to deliver oil based on the Shanghai contract in July.
BP has reportedly delivered 3mn barrels of Iraqi oil to the contract, and is set to hand over another 1mn barrels next month. This means more crude oil will be traded on the Shanghai Stock Exchange soon, and the imported oil to China will only deal with this standard and the Chinese currency.
I am confident that all companies, operators and producers around the world will focus on the question of the ability to rationalise operating expenses and sell what is produced to achieve a profit margin due to the continuing uncertainty in the oil market and prices.
In conclusion, we refer to what we presented at the beginning of the article in the light of these developments, which is not the recovery of the global oil market.
And we say that the global oil demand is still recovering from the repercussions of the Coronavirus pandemic, and the general expectations suggest a growth in demand for crude oil in China by 2023.
* Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.
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