The effects of the Coronavirus outbreak are bound to be felt in the tanker market for many more months to come, possibly until after the first half of the year as well. In a recent weekly report, shipbroker Banchero Costa said that “the COVID-19 coronavirus health scare is probably going to fizzle out in 3 to 6 months, just like SARS, H1N1 and MERS did respectively in 2003, 2009 and 2012. But the impact on the global economy, and on the oil markets in particular, will be significant. The holidays in China were extended, many cities are in partial or total lockdown, there is uncertainty about when migrant workers will be able to move again to the cities and coastal provinces due to quarantine policies and travel restrictions, many construction sites and factories are likely to remain shut for weeks if not for months, and travel has been significantly disrupted”.

Source: Banchero Costa

Banchero Costa said that “according to some estimates, Chinese oil demand has dropped by about 20 percent, or by about 3 million barrels per day. This is very bad news for OPEC, and Saudi Arabia in particular. The Kingdom is particularly exposed to the Chinese market now – given the shale production boom in the USA, the Saudis have lost most of the market they used to have in the Americas, and are increasingly reliant on China and India to buy their oil. Also, under the trade war between China and the USA, China sharply reduced oil imports from the USA, and instead begun importing more from the Middle East, to the benefit of the Saudis”.

“Therefore, any decline in Chinese demand squarely hurts the Saudis more than any other oil exporter. The Saudis put all their eggs in the China basket, and now that basket is looking increasingly fragile, at least in the short term. In the 12 months of 2019, Saudi Arabia exported 344.6 mln tonnes of crude oil, according to vessel tracking data from Refinitiv. This represents a decrease of -2.1% year-on-year, compared to the 352.0 mln tonnes exported in 2018, as a consequence of agreed production cuts. However, 2019’s total was still +0.9% more than the 341.6 mln tonnes of crude exported in 2017”, the shipbroker said.

Source: Banchero COsta

According to Banchero Costa, “there has been a very significant reshuffling in the trade patterns. In 2019, crude exports from Saudi Arabia to China surged by +44.2% to 78.5 mln tonnes. China is now the destination for 23% of Saudi’s total seaborne crude exports, up from 16% in 2018. Exports from Saudi Arabia to the USA, on the other hand, crashed by -50.9% year-on-year to just 20.8 mln tonnes in 2019, from 42.4 mln tonnes in 2018. The USA now account for just 6% of total Saudi seaborne crude exports, down from 12% in 2018. Japan used to be the top destination for Saudi crude until 2018. However, Japan’s share has fallen to just 15% in 2019. In 2019, Saudi Arabia exported 53.1 mln tonnes of crude to Japan, down -6.7% year-on-year. Shipments to South Korea also declined last year to 39.9 mln tonnes, down -3.0% year-on-year. India has now overtaken Korea as the third largest importer of crude from Saudi Arabia, with an 11.8% share. In 2019, India imported 40.8 mln tonnes from Saudi, up +4.7% yearon-year. Exports to Europe have also declined in 2019. Direct shipments to European ports were down -25.7% year-on-year to just 9.1 mln tonnes. Shipments to Ain Sukhna in Egypt (for the Sumed pipeline to the Mediterranean) also declined by -3.4% to 33.2 mln tonnes”, the shipbroker concluded.