As one of the leading powers in the oil industry, the quarantines in China have dampened the global demand for oil. The coronavirus has resulted in reduced international and local travel within China, leading to a decreased need for fuel in the country.
The U.S. and other countries have warned citizens to avoid travel to China if possible, leading to fewer international planes flying into the country. Further, the quarantines and travel restrictions within the country have resulted in a less travel on trains, buses and cars, which usually require fuel.
Brent crude oil – an international crude benchmark – has dropped from $66 at the beginning of the month to about $54.47 per barrel last Friday. U.S. West Texas Intermediate oil prices dropped to $50.32 per barrel.
Goldman Sachs estimated the coronavirus could result in a decrease of demand by 260,000 barrels per day (bpd) in 2020.
The International Energy Agency (IEA) revealed the world’s demand for crude oil will decrease, marking the first slump in demand since the 2009 financial crisis. The IEA claimed first-quarter oil demand would likely fall by 435,000 bpd compared to a year ago.
However, U.S. Energy Secretary Dan Brouillette claimed the coronavirus would only have a marginal impact on energy markets, even if Chinese oil demand falls by 500,000 bpd. It’s impossible to deny the impact on the market, “but at this point it’s marginal,” Brouillete said while visiting in Portugal.
As of March 17, oil prices had fallen by more than 50 percent since the beginning of the year. Travel bans implemented by the U.S. has contributed to dropping prices.
What does all this mean for drivers? Auto owners in the U.S. may see a decreased price at the gas pump. The average national gasoline price fell by around 8 cents – to $2.21 per gallon – as of March 18.
And these impacts may also extend to the job market. In correspondence with CNBC, Nathan Sheets, chief economist at PGIM Fixed Income, wrote, “A sustained drop in oil prices would cost the sector 50,000 – 75,000 jobs if employment returned to its low from a few years ago.”