(Reuters) - A fast-spreading coronavirus in China has sent shockwaves through global commodity markets, prompting OPEC and its allies to consider deepening crude supply curbs and Asia’s largest oil refiner to slash over a tenth of its output.

FILE PHOTO - An oil tanker unloads crude oil at a crude oil terminal in Zhoushan, Zhejiang province, China July 4, 2018. Picture taken July 4, 2018. REUTERS/Stringer

MARKETS EXPECT REDUCED OIL DEMAND

The oil market looks set for at least four months of depressed demand because of the coronavirus outbreak, with a large crude surplus not expected to clear at least until August, analysts and traders said.

Fears of a virus-related slump in global energy demand have flipped the market into contango this week - a structure in which longer-dated oil futures trade at a premium that encourages traders to keep crude in storage for more profitable resale in the future.

Oil markets at one point dropped nearly 20% in the wake of the virus’ spread, a signal of market fears of falling demand.

OIL MAJORS RESTRICT CHINA TRAVEL

Royal Dutch Shell Plc RDSa.L, Phillips 66 PSX.N, oil services company Halliburton Co HAL.N have all either banned or limited travel to and from China.

Energy Transfer LP ET.N has brought U.S.-based employees back from Beijing.

CHINESE OIL, GAS SALES PARALYZED

Short-term sales of crude oil and liquefied natural gas into China almost ground to a halt this week amid slowed economic activity and hurt demand and buyers pondered legal action to avoid having to honor purchase agreements, trade sources said.

Fears about the virus are hampering Energy Transfer’s efforts to lock in contracts with Chinese customers to deliver LNG from the U.S. Gulf, the company said.

OPEC, ALLIES CONSIDER SUPPLY CUTS

The Organization of the Petroleum Exporting Countries and its allies are in discussion to bring forward a policy meeting to this month from March, and to consider deepening oil supply curbs by an additional 500,000 barrels per day to 2.2 million bpd.

CHINESE REFINERS CUT FUEL PRODUCTION

China is the world’s second-largest oil refiner and a critical growth engine for the global economy, so any material contraction in Chinese economic activity is expected to have far-reaching repercussions across several industries.

China's Sinopec Corp 0386.HK, Asia's largest refiner, is cutting throughput this month by 600,000 bpd, around 12%, its steepest cut in over a decade, in response to slowing oil demand.

Sinopec’s trading arm Unipec has suspended purchases of West African crude and is looking to re-sell at least five of its March-loading Angolan cargoes.

Analysts predict China’s oil demand could fall by 250,000 bpd in the first quarter of 2020 with jet fuel taking the hardest hit as international airlines shun the country due to the virus.

JET FUEL MARGINS FALL

The coronavirus outbreak has caused many airlines to stop flights to parts of China, weakening demand for jet fuel. U.S. prices dropped to their lowest seasonally in five years, market participants said.

Jet fuel prices and production margins in Asia posted their biggest monthly decline in more than a decade in January, hurting refiners and fuel exporters.

Freight rates for supertankers on the Mideast Gulf and U.S. Gulf routes to Asia have fallen to their lowest since mid-September.

(Graphic: Commodities prices under pressure as China grapples with the coronavirus - )

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