Coronavirus to Delay Global Recovery, Cause Oil Surplus

The coronavirus epidemic is expected to delay global economic recovery this year and push the global oil market into a supply surplus in the first quarter, according to independent research firm Capital Economics on Thursday.

Brexit, the euro-zone crisis, the Sino-American trade war, China’s economic slowdown and the U.S. Federal Reserve lowering interest rates were cited in the report as some developments in recent years that have threatened stalling global economic growth, but the coronavirus looks likely to succeed.

“… It looks like the [coronavirus] hit has been big enough for global GDP to contract this quarter,” the report titled Coronavirus to Delay the Global Recovery said.

“Containment measures are weighing heavily on China’s economy and are hurting activity in other economies in the region. Compared to our pre-virus forecast, world GDP will be perhaps $350 billion lower this quarter,” it added.

Although there is a large degree of uncertainty, Capital Economics said its best guess is that the world’s GDP will contract by 1% annualized in the first quarter of 2020, which would be the first quarter-to-quarter contraction since the first quarter of 2009.

However, if containment measures work in the coming weeks, economic activity in affected countries will rebound in the second quarter of this year and the global recovery will get back on track, it added.

Oil market set for surplus in Q1

Capital Economics said in a separate report on Tuesday that the global oil market is expected to have surplus supplies in the first quarter of 2020 due to low oil demand brought about by coronavirus.

The outbreak of the virus has weighed heavily on Chinese economic activity and oil demand of the world’s second largest oil consumer.

“… The virus has disrupted everything from airports to manufacturing supply chains,” said the report titled The Oil market to Flip Into a Deficit After Q1.

Capital Economics said it assumes China’s crude oil consumption will fall by approximately 10% in the first quarter of 2020, from the same period of last year, while oil demand growth is expected to be “relatively soft” in countries with close economic links to China.

The research firm said it revised down its global oil consumption growth expectation for 2020 to 0.7 million barrels per day (bpd), from the previous estimate of 1.1 million bpd.

If, however, coronavirus is contained, oil demand will recover in the following quarters in 2020 and weak oil production growth this year will lead to a supply deficit for the remainder of 2020, the firm said. (AA)