When China sneezes, the oil markets catch a cold. Mirroring the effects of the SARS crisis in 2002, oil markets shed more than $8/bl in January on the back of the potential impact on oil demand from the effects of the Coronavirus outbreak.
The apparent calming of the Middle East crisis, fuelled by the killing of a top Iranian general at the start of the year, assisted the lower trend.
Prices at the pump were not keeping up with the international markets and look ripe for heavy falls, particularly diesel, which stood at a seven-month high in the last week of January despite a plummeting international spot market.
Ice Brent crude futures stood at $58.16/bl on January 31 after coming close to $70/bl at the height of the Iranian crisis.
Evidence is already accumulating in the spot markets of a large drop in Chinese demand, backed up by anecdotal evidence around the activities of Chinese oil firms.
Refinery runs in China fell by nearly 850,000 b/d in January from a record 13.8mn b/d in December, Argus surveys indicate.
And a further 500,000 b/d cut in refinery throughputs in February appears likely to be at the very conservative end of forecasts. The real drop could be much larger as most of this data reflected Chinese demand before the Coronavirus crisis.
The travel restrictions alone in China at the height of the peak lunar new year holiday season represent a lost chunk of demand, but it is the overall health of the Chinese economy that has pundits most concerned. On the positive side, China is tackling the crisis with unusual transparency in marked contrast to the handling of the SARS crisis, which took nine months to control.
UK motorists can expect to see retail prices for petrol and diesel fall between one to two pence per litre if the current crude losses are sustained.
This is likely if the market continues to focus on a sudden and unexpected demand crisis. But tensions remain high in the Middle East between the US and Iran and continued high volatility is likely to be the order of the day.