Almost all commodity prices are vulnerable amid global slowdown caused by coronavirus, especially the global crude oil prices are plunged below $30 a barrel again.

As the outbreak widens, the most severe impact on oil demand will be through aggressive travel curtailments. Efforts across the globe to contain the virus have already forced airlines to cancel flights, public gatherings to be suspended, and business conferences to be postponed. Passenger traffic is also certain to decline as a standard component of the public health emergency includes work-from-home arrangements. For example, a 35% contraction of world ex-China jet/gasoline/diesel consumption for a month (March) amounts to about 1.5 mbd contraction in world ex-China demand.

China’s success in stabilizing the rate of contagion in about eight weeks seems to have been replicated in Hong Kong and Singapore, suggesting that quarantine efforts are helping limit further contagion.

The initial curves in S. Korea, Italy, Iran, Germany, and France still seem to be in the early to middle acceleration stages, but limited mutations so far suggest similar behavior should be expected in these countries and across the globe with global infections peaking around end March/early April.

The shock to Chinese demand may have bottomed, but as the virus turns pandemic the hit to the rest of the world is just starting.

We now expect global oil demand to contract by 2.6 mbd q/q in 1Q20, while China’s oil demand is forecast to fall 1.1 mbd q/q. We see oil demand for Asia-Pacific (ex. China) declining by almost 0.6 mbd y/y and project oil demand for Europe and North America to fall by 0.3 mbd y/y during the quarter.

We do expect global oil demand to rebound by a tepid 0.8 mbd q/q in 2Q’20 led by a recovery in Chinese oil consumption. However, gains are expected to be tempered by seasonal weakness and virus-induced drags to oil consumption in other regions such as Europe, Middle East, and North America.

As a result, we now expect oil demand to remain unchanged compared to 2019 levels at 99.5 mbd during 2020. This amounts to a sharp downside revision compared to earlier expectations for 0.76 mbd growth y/y in 2020.

Hence, we advocated shorts in CME WTI futures contracts of far-month tenors with a view to arresting further dips, since further price dips are foreseen we would like to uphold the same strategy by rolling over these contracts for May month deliveries. Courtesy: JPM