Posted by on March 5, 2020 1:10 pm
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Daniel McGroarty, TES GeoPolicy Editor


As the world wakes each morning to new numbers mapping the Coronavirus’ spread, along comes a piece by Andrew Butter provocatively titled, “What China Knows About the Coronavirus that Oil Traders Don’t Know.”  Read it in full at SeekingAlpha.


Butter watches global oil markets, and he’s noticed something odd — odd to everyone but him, to be precise — about China’s oil purchases.  If China’s economy is experiencing a virus shock, why are Chinese oil purchases going… up?


Butter thinks he may just know, because he’s seen it before — in the months following the onset of the SARS virus in 2003.  Maybe there’s a pattern — evident in Chinese behavior, not official government statements which, we all know, are not immune to spin — that could prove instructive as the world grapples with COVID-19.  And meanwhile, Butter and those like him can just make money understanding trends more deeply and quickly than the rest of us.  Nothing wrong with that at all; it’s on us if we fail to extrapolate wisdom that could help us stay healthy and alive.


My favorite brain-teaser from Butter’s piece:


An aside, the words “statistically significant” are, technically, meaningless; but everyone uses them. The correct wording is “null hypothesis, the probability that the drop in GDP-per-barrel in 2003 and 2004 was not linked to SARS is less than 10,000 to one”, which is a bit of a mouthful.


So it is, and spoiler alert:  Butter’s piece comes slathered with multi-variate equations.  But don’t let that scare you.  Suffice it to say that Butter’s take is a timely reminder that when an unanticipated event occurs, don’t fall back on “everyone knows” nostrums to project the knock-on effects.  It’s tempting to default to a facile linkage:


Corona virus means less economic activity in China /

less economic activity means less oil consumed /

which means global oil demand declines


…only to find that the SARS experience suggests that the virus’s spread means less rational economic activity / which means demand for more oil, consumed less efficiently.


China banked up oil as SARS progressed; it appears China is doing the same with COVID 19.  It’s an interesting dot.  Does it connect with the pointillist painting that is global economics?


Here’s why it might, inflected by how humans behave and adapt:


More airport health screening means longer lines and more hassle.  Sure, non-essential trips get cancelled.  But travel isn’t a binary go/no-go:  Fewer people fly, preferring to drive.  And as the virus persists, even the most intrepid air travelers may come to balk at long trips in a closed metal tube sharing recycled air with strangers bearing pathogens.


The result:  more trips by car – which may take longer, but for single-passenger trips, limits human exposure altogether – very energy inefficient – or keeps exposure among known friends and family.  Again, good public health hygiene, but very energy inefficient.


So along comes a Butter-fact:  BTUs (British Thermal Units) per-passenger-mile.  Cars are far less fuel efficient than airplanes.  Hence, more oil used, not less.


Depending on the duration of the virus, Butter goes on to speculate about oil at $100 or even $200 per barrel.


Whether Andrew Butter proves right or wrong is an open question.  But this much we know:  When a new virus is hunting for human hosts, best to inoculate yourself against group-think.


Daniel McGroarty, TES GeoPolicy editor, served in senior positions in the White House and Department of Defense, and has testified in the U.S. Senate and House on critical minerals issues.  McGroarty is principal of Washington, D.C.-based Carmot Strategic Group, and president of the American Resources Policy Network, a non-partisan virtual think tank dedicated to informing the public on the importance of developing U.S. metal and mineral resources.  The views expressed here are his own.