Oil Prices Plummet As Coronavirus Outbreak, Quarantines Soften China's Demand

China is the world's largest importer of oil, and COVID-19 has led to a sharp drop in its demand for crude. That means bad news for Saudi Arabia, which needs high oil prices.

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The coronavirus outbreak in China put millions of people in quarantine, idled factories and severely restricted transportation networks. All that has led to a sharp drop in China's demand for crude. And as NPR's Jackie Northam reports, that is a major concern for countries that rely on oil exports to China.

JACKIE NORTHAM, BYLINE: Amongst the oil-consuming countries in the world, China is in a league of its own, says Roger Diwan, a senior oil strategist at IHS Markit, a global information and analytics firm.

ROGER DIWAN: It's really the linchpin of oil demand in the world. China imports about 10 million barrels per day, which is more than the next three countries - the United States, Japan and Korea.

NORTHAM: But that was before the coronavirus broke out. Diwan says it's hard to get real-time data for Chinese demand. But all signs point to a significant drop.

DIWAN: A lot of cargo is starting to pile up in China, where they're not getting into the refining system.

NORTHAM: Oil prices have plummeted and now hover just below $50 a barrel. This is bad news for countries that depend on oil sales to China. Jim Krane, a Middle East energy specialist at Rice University's Baker Institute, says it's particularly tough on Saudi Arabia, where Crown Prince Mohammed bin Salman has promised a major overhaul of the kingdom's economy.

JIM KRANE: They need a high oil price to do all that. It's much tougher to incubate new industries and create jobs and try to develop new economic sectors, you know, when oil's at 50 bucks.

NORTHAM: Krane says that's not nearly enough for the Saudi government to help pay for the extensive social services in the kingdom - everything from generous subsidies, free education and low taxes - public benefits that help keep the Saudi royal family in power.

KRANE: So in order to fund their government budget without a deficit, they need 80 bucks. So they're nowhere near that. So they're dipping into their reserves. They're issuing bonds and trying to raise cash that way.

NORTHAM: Saudi Arabia has been trying to convince other members of OPEC, along with Russia, to slash production in an effort to raise the price of oil. That's expected to dominate an OPEC meeting on Thursday and Friday. Greg Priddy is a global energy specialist at Stratfor, a geopolitical intelligence company. He says Russia, a major player in OPEC right now, appears content to ride out the low prices until the coronavirus is under control. Priddy says the disease is seen as a sharp but short disruption to demand.

GREG PRIDDY: The coronavirus impact is a one-year phenomenon. It's not something that's going to destroy demand over a period of five or 10 years. As the crisis resolves in a couple of months, it will come back on.

NORTHAM: But it could be a rough few months for oil exporters until the crisis has passed. Meanwhile, the coronavirus continues to spread to other oil-buying countries, such as South Korea. Jackie Northam, NPR News.

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