Rock-bottom prices and predictions of a massive plunge in global oil demand for this year are seeing China buy up record tonnes of Russian oil, temporarily vindicating Moscow as it persists in its stubborn market share war with the Saudis.
Reuters reported that China is scooping up 1.6 million tonnes of Russian Urals grade oil for loading over the next month. That’s 400,000-tonne-plus increase over January loadings.
Russian Urals grade is too cheap to resist at this point, losing nearly 9% on Wednesday, to hover in the $21 per barrel range.
But it’s not all roses for Russian Urals. There’s a trade-off here: Demand in Europe is collapsing due to coronavirus, so Chinese loadings are largely offsetting some of this.
At the same time, Russia’s economy is expected to contract by 1% this year, based on forecasting from BOFIT, the Bank of Finland Institute for Economies in Transition, as reported by BNE Intellinews. That compares to earlier forecasts of 1.9% growth for the Russian economy.
Weathering the self-inflicted oil price war in combination with the drop in global demand brought about by COVID-19 may be more than Russia can handle. According to Norway’s Rystad Energy, it’s going to get much worse.
As reported by Reuters, Rystad said that the coronavirus pandemic could force global oil demand to fall by 4.9 million barrels per day (bpd) in 2020, representing a nearly 5 per cent drop. That’s a significant number because only last week Rystad had put the drop at 2.8 million bpd for this year.
Forecasts are now changing as swiftly as the virus is spreading, and April will likely be a month of major mourning for the industry as the consultancy predicts a 16-million-bpd drop in demand compared to the same month last year. For Russia, the numbers look disastrous, but for China, where the virus originated, it’s an opportunity to stockpile on the cheap.