- GS estimates Chinese oil demand destruction by 4 million barrels per day.
- Oil investors and traders need to monitor gasoline consumption trends globally.
- Coronavirus maps and traffic data are useful real-time tools.
- The virus has reduced gas demand in China.
- And the spread is reducing gas demand in other places.
- Looking for a helping hand in the market? Members of Boslego Risk Services get exclusive ideas and guidance to navigate any climate. Get started today »
It has been widely reported that the coronavirus, COVID-19, has disrupted oil demand in China. Goldman Sachs (GS) estimated that it has reduced demand by 4 million barrels per day.
However, in contrast to supply shocks, which can be measured by oil tanker movements, for example, demand shocks are much harder to quantify. Weekly data are available for the United States, but data quality and frequency are much lower for the rest of the world.
For example, demand data from the U.S. Energy Information Administration (EIA) for the week ending February 21st showed total U.S. product supplied, a proxy for consumption, showed a 3.2% decline in the year-to-date. For the last 4 weeks, it showed jet fuel demand down 8.3%.
To get some visibility on real-time demand impacts, I find two tools to be particularly helpful, though imperfect. There can be value in imperfect information.
The first tool comes from Johns Hopkins University (JHU) Center for Systems Science and Engineering (CSSE). It shows global cases plotted on a world map. This helps identify the areas to search for demand destruction.
The second tool is provided by TomTom N.V., a Dutch multinational that engages in the design, development, and sale of navigation and mapping products, software, and services. The TomTom Traffic Index provides detailed insights on live and historic road congestion levels in cities around the world. Traffic congestion provides a real-time indication of driving levels and an approximation of gasoline demand impact.
The virus has spread through much of eastern China from its epicenter, Wuhan, site of the Wuhan Institute of Virology, the first biosafety level 4 (BSL–4) laboratory to be built in mainland China.
The TomTom Traffic Index shows congestion in Wuhan over the past 7 days compared to the same days in 2019. The percentages on the scale represent the extra time it will take for a 30-minute trip. According to the site:
A 53% congestion level in Bangkok, for example, means that a 30-minute trip will take 53% more time than it would during Bangkok’s baseline uncongested conditions.
You can turn this 53% into travel time through simple calculations.First: 0.53 x 30 mins = 15.9 mins extra average travel time.Second: 30 mins + 15.9 mins = 45.9 mins total average travel time.”
We calculate the baseline per city by analyzing free-flow travel times of all vehicles on the entire road network – recorded 24/7, 365 days a year.”
The data above show that Wuhan’s congestion is far below what it was last year, implying gasoline use is only a trickle of last year’s.
Beijing traffic congestion was much reduced last week and almost non-existent over the weekend, but much of it was restored early this week.
The same is true for Shanghai.
Congestion in Hong Kong remained about the same as last week, down from a year ago.
Outside of China
The spread of the virus has begun to affect traffic flows outside of China and thus global oil demand.
Congestion in Singapore is down from last year and has not changed from last week.
The virus has spread to Iran and other parts of the Middle East.
Congestion in Kuwait City has dropped significantly.
And the virus has spread to Europe, hitting Italy the hardest thus far.
Milan’s traffic congestion is much lower than 2019.
In the U.S., 100 cases have been confirmed and 6 have died.
The outbreak in Los Angeles has been small thus far and traffic congestion has not dropped much from a year ago.
The spread of the virus through much of China has now extended to many countries throughout the world. In Washington state, where 6 people have died, Dr. Kathy Lofy, Washington’s state health officer, told reporters at a news conference:
"Unfortunately, we are starting to find more COVID-19 cases here in Washington that appear to be acquired locally here in Washington. We now know that the virus is actively spreading in some communities.”
Unfortunately, the normal steps the government can take to fight a recession won’t work very well if the epidemic causes the economy to slide into recession. It is a problem that cannot be fixed by the government putting more money into people’s pockets. If businesses and schools close and people stay at home, they won’t be spending the extra money the government hands out.
Keeping abreast of the spread of the virus is critically important to gauging how much oil consumption may be destroyed worldwide. The JHU CSSE global map is a tool that can aid in that effort.
Zeroing-in on traffic congestion at major areas of outbreak is perhaps the best way of assessing the real-time impact on gasoline consumption in places around the world where real-time oil consumption data does not exist.
What the data show is that the virus is spreading worldwide and that traffic congestion is being reduced - which can only mean that there is less driving and gasoline consumption in these areas than last year.
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