There are not reasons to assume that the coronavirus should have a strong impact on the oil market even in the annual perspective, according to Maxim Kanishchev, former top manager at FGS UES and TNK-BP and Managing Director of RusEnergoProekt, who gave an interview to Invest Foresight.
China is one of the largest oil consumers, with its demand for oil in steep decline right now due to the quarantine and transit restrictions. A similar scenario can soon be expected elsewhere in the world, Maxim Kanishchev agrees.
However, the expert believes the drop in demand will hardly exceed 5%. This is a substantial figure but we should understand that it is caused by panic.
Once the virus has been defeated (the WHO is claiming that at least 20 vaccines are currently in development and will shortly reach the market), there will be an inevitable surge back up. Empty warehouses will have to be urgently filled and production facilities will have to operate at 110% of their capacity.
“Then tourists, hungry for new experiences, will rush to explore the planet using all kinds of transport that does not run on wind. Those who stay at home will run to Zara and H&M to recover from stress and anxiety by shopping – and 80% of clothes in these stores are made of processed oil,” Maxim Kanishchev predicts. “This will trigger consumption and propel prices to a level higher than when the outbreak began. Investors will win back way more than they lost. Strategic oil production and processing plans will be in no way affected by the coronavirus as they are developed based on different mechanisms that rule out local panic.”
The expert also suggested that in the current situation OPEC will likely decide to cut back on production, which will boost oil prices – a good solution that will maintain the oil reserves without losing revenue. Clearly, Russia will not support this decision as it has no technological capacities to regulate production in a more flexible way, unlike Saudi Arabia.