Crude markets are faced with a real battering. Prices are in freefall. By Friday evening, the U.S. West Texas Intermediate crude settled down 4.9 per cent, to $44.76 per barrel, falling about 16% for the week – the biggest drop since December 2008.

The Brent crude contract for May was down 3.2%, at $50.749 a barrel, a 14-month low.

Crude consumption of China, the world’s largest importer, has been hit hard. Saudi Arabia, the world’s top oil exporter, is reducing crude supplies to China in March by at least 500,000 barrels per day (bpd). China normally takes 1.8-2 million bpd of Saudi crude, sources told the press.

But the demand destruction is not only related to the coronavirus epidemic. It is structural in nature. Climate issues are also a cause of real concern to the markets and it was on display this week.

Even the Russian oil minister Alexander Novak, despite not giving the green signal yet, to cut output further, is conceding; the spread of the coronavirus outside China could lead to further downward revisions to global oil consumption. Earlier TASS had quoted Novak as saying the outbreak would reduce (global) oil demand by 150,000-200,000 bpd in 2020.

Banks and consulting houses are also beginning to have a deeper look at the crude market prices and demand growth projections for the year. Average crude prices are set to fall below expectations, Norwegian consulting house Rystad Energy said while revising down its forecasts.

Brent crude oil prices, which Rystad had earlier expected to average nearly $60 per barrel in 2020, are now forecasted to slump to about $56 per barrel for the year following revisions to their January forecasts. Another negative revision might be around the corner due to the increasing downside risk. Rystad also believed that the market surplus may go up to 1.8m bpd, unless additional production cuts are made.

Citing the coronavirus and its impact on the crude markets, Goldman Sachs told clients last

Wednesday it was cutting its 2020 oil demand growth forecast in half to just 600,000 bpd. “If the coronavirus spreads further globally, then we expect further downside risk to our estimates,” analyst Brian Singer said in the report.

The demand destruction is not only coronavirus related. Climate issues are also getting into play.

A Bloomberg report last week pointed out, two dark clouds loomed over the oil industry’s biggest annual gathering last week: climate change and coronavirus.

Reporting from London, Mathew Carr and Laura Hurst pointed to the changing perceptions within the industry: Last year, protesters demonstrating against the growing global fossil fuel consumption could only glue their hands to the doors of the conference venue, complaining of record winter heat. This year, climate experts were invited in and given the floor. Greta Thunberg is carrying big impact.

At the conference, regarded as among the industry’s largest annual events, executives were given a blunt warning. Continued production of fossil fuels was a path to the industry’s own “obsolescence and destruction”, Bob Ward of the London School of Economics was quoted as saying.

The energy transition, lowering carbon emissions and accelerating toward a greener future dominated the first day of discussions at the conference. Global emissions may flat line around current record levels, putting the world on track for a temperature increase of about 3 degree Celsius, IEA Executive Director Fatih Birol told delegates.

Big Oil is also under increasing pressure to demonstrate its willingness to curb carbon emissions and show how it would align its business model with the Paris agreement. Pension funds and other investors are bearing down on fossil fuel producers, Bloomberg added.

We are in a different environment. “You go to a dinner and say you’re the CEO of an energy company and immediately you’re under attack,” Energean Oil & Gas SA boss Mathaios Rigas told delegates at the conference.

Oil majors are taking the cue. BP has pledged to eliminate almost all carbon emissions from its operations and the fuel it sells to customers. Spanish oil major Repsol SA has also vowed to cut carbon emissions to net-zero by 2050. Shell and Norway’s Equinor are also targeting to reduce the carbon footprint of the energy products they sell.

Equinor ASA also announced last Tuesday to drop plans for oil drilling deep in the ocean off Australia’s south coast following a sustained campaign from environmentalists. Canada’s largest diversified mining company, Teck Resources has also announced withdrawing its application for an oil sand project, deeply contested by environmentalists.

This is a changed world. The industry is in a crisis.

Published in Dawn, March 1st, 2020