The sharp decline in oil demand from China due to the coronavirus is causing oil cargoes to be stranded off the country’s coast and across Asia. Last week, OPEC lowered its forecast for global oil demand by nearly a quarter million barrels per day as the pandemic of the coronavirus has crippled fuel consumption in China. Demand from China, the world’s largest importer of oil, has dropped by three million barrels per day which is twenty percent of Chinese consumption.
Bottlenecks for Very Large Crude Carriers (VLCCs) have been forming over the past two weeks as Chinese refineries have cut output by 1.5 million barrels per day, causing crude storage to pile up. This has prevented several VLCCs, capable of holding more than 2 million barrels of crude, to unload at China’s top crude import terminal of Qingdao. As a result, the vessels have been diverted to other markets in South Korea, Malaysia and Singapore, but even these regions are seeing tanker traffic jams building. When these vessels cannot be unloaded, their charterers must pay for demurrage costs. These fees have been between $90,000 to $100,000 per day, motivating shippers to attempt to transfer crude to older tankers that cost less to operate.
The surplus will continue to grow as countries run out of space to stockpile extra fuel. China has roughly 39% of their storage facilities left to utilize, but these storage facilities have never been filled completely. There seems to be no swift end in sight for the coronavirus as it continues to cripple the world’s largest oil importer.