CoronoaVirus Impacts Global Oil Supplies

Coronavirus, the Chinese virus that has caused nearly 500 deaths and 25,000 infected worldwide, has begun to affect the world economy with the closure of thousands of factories and businesses in the country, suspension of commercial flights to and from the nation, falling domestic consumption, but above all keeping almost 100 million people in quarantine, taking into account that the Chinese economy represents nearly 17% of the world’s total GDP. Logistics software company CartonCloud, believes the coronavirus poses a threat to the global supply chain. 

The effects of this type of pneumonia caused by this virus have caused oil prices to fall by more than 20% in just five weeks, experts estimate that demand for crude oil could drop to 2.5 million barrels per day, a disruption from trade between the two major world economic powers and supply chains for a large number of countries.

David Malpass, president of the World Bank, said Tuesday that the virus would lead the institution to reduce the forecast of world economic growth, especially for its impact on the supply chain, when only a month ago he projected global growth of 2.5% for this year.

Malpass placed special emphasis on explaining the impact of the epidemic on supply chains to and from China. “To give an example. Many Chinese products go out into the world in the belly of passenger planes. So if passenger flights are cut, supply chains need to be adjusted so that the world economy continues to operate,” he said.

Meanwhile, the Dutch bank ING assured in a statement to its customers that “the brakes on Chinese domestic demand will clearly have an impact on the world economy.” In the same way Michala Marcussen, chief economist at Société Générale, warned that “China could lose one point of its GDP in a full year and this will mechanically attract 0.4 points of world GDP.”

So far there is uncertainty, you must stay alert but there is no reason to worry. Now, if the crisis extends a lot (around six months) and is fully realized, it will be the end of the party for some countries in the world, which come with a pretty good economy. Everything will depend on the duration of the plague. If it is possible to extend more time than market forecasts, we can begin to see more negative effects on the global economy, especially because of falling oil prices. Economic problems will start to become complicated if this continues for more than a few months.

Oil problem

Oil is perhaps the most affected product. For example, last week it was discovered that China was crippling oil purchases from several Latin American countries, the main export products of these countries, because of the decline in refinery activity in these countries. There will be indirect impacts related to what could become commodity markets, especially oil. The impact on the global economy will depend on the response to this kind of phenomenon. That’s not a big problem because it explains that oil will be sold elsewhere. What is important is the length of the crisis and how much it will reduce over time the acquisition of crude oil by Asian countries, the second largest consumer in the world. The disruption to the trade of China-petroleum-producing countries is also not so serious for the economic growth of these countries, because their current economic fundamentals are not too dependent on oil but on domestic consumption, business investment and not too much export. There is fear that contagion will lead to closure of the border and that the Chinese economy will grow less. Another concern is the lack of dynamics of the Chinese economy, because the spread of the virus can slow down the production and demand of Asian giants. There are projections that growth in China can be below 6% and of course this has global consequences. Although the effects of the coronavirus have not yet begun to be felt in the world economy, the truth is, as all analysts have consulted, it all depends on the ability of the Chinese government to control it and will not last long.

Latest updates

China will take steps to ensure energy supply amid the paralysis of the corona virus epidemic. China will take steps to ensure the supply of coal, electricity and natural gas to support the control of the new corona virus. Efforts will be made to ensure stable energy is provided to areas that are severely affected, including Wuhan, distribution centers and other major cities, the Chinese government said in a statement. “Energy supplies must be prioritized for designated medical institutions, major supply producers for epidemic control, and hotels and communities designated as quarantine locations,” they have warned. To do this, coal mines are encouraged to continue production, while incentives will be provided to support coal transportation. “Energy supplies for hospitals, vaccine research centers, and medical supply manufacturers must be guaranteed,” while they conclude, “restrictive measures can be taken in some companies that consume a lot of energy in areas with low energy inventory whenever it is needed.”

Alibaba launches a platform for faster supply to doctors stationed in risk areas in China

The Alibaba Group has launched a global B2B sourcing platform to connect medical supply providers with frontline medical staff responsible for preventing the spread of coronavirus in China. Alibaba is committed to sending the necessary supplies quickly and safely. The company works closely with global logistics partners to provide the most efficient and timely delivery solutions. Cainiao, Alibaba’s logistics unit, has launched a Green Channel initiative with industry partners in China and abroad to ensure product delivery, proper handling and delivery.

It can be concluded that if the problem of this virus cannot be solved satisfactorily, all aspects of the world can be affected in a bad way, not least how the supply chain is organized. Hopefully this article is able to provide the right perspective on how this virus can affect the global economy.