COVID-19 #12 (Required Parts are Highlighted)

There is always the possibility that these are fake news:

• There are videos coming out of Wuhan of body collection vehicles making pickups in residential areas.This is plausible if the hospitals are full, as has been reported extensively for 2 weeks now.
• There are also videos of body bags being used to contain the body of more than one child. This also seems plausible if there are shortages due to either use or lack or production and transportation due to quarantines.

This one is definitely real. The U.S. is evacuating its consulate in Hong Kong. It is believed this is the first time ever in response to disease. Public announcements do not show a lot of cases in Hong Kong, so you have to wonder why an evacuation. On the other hand, there are other U.S. consulates in China (in Beijing, Chengdu, Guangzhou, Shanghai, and Shenyang) where there are presumably more cases that were not shut down. And there’s always the possibility that the employees in Hong Kong pushed for this.
To clarify, the epidemic is COVID-19. The virus itself has been named SARS-CoV-2.

This is incredibly sad. And very unsettling. #COVID19 #2019nCoV https://t.co/2rgk73fSqn

— Helen Branswell (@HelenBranswell) February 11, 2020

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Oil prices have started to show the effects of COVID-19. Local gas prices will soon follow.
Here’s a little bit on oil first. Most people don’t realize that there is very little oil storage relative to use. Most stuff comes out of the ground, is shipped to a refinery, processed, and sold for use to its ultimate consumer in a matter of weeks. The reason for this is obvious: oil is dangerous to store. Gas is even harder to store, so if it doesn’t get used it mostly needs to be burned off somewhere.
This is part of the reason the retail price of gasoline fluctuates so much. Our demand for it is relatively inelastic, but its supply shifts a lot.
China is, and has been for several years, the largest consumer of oil.
Digression A good economics student should be able to defuse a good bit of environmentalist mumbo-jumbo by thinking that through. The U.S. economy is larger than China’s, but China uses more oil. This should tell you that we are more efficient. That shouldn’t be surprising: top to bottom we’re a richer country, and one way managers turn revenue into profits is by reducing costs, often through efficiency improvements. That’s also why we pollute less than China does.The implication is that economic growth leads to a cleaner environment. This should be fairly obvious if you compare a rich neighborhood to a poor one, or a rich country to a poor one. But that observation seems to be foreign to many people without enough exposure to basic economics.
Anyway, China’s economy is somewhat shut down, and has been for a few weeks. And this means that global demand for oil has shifted left. This means that prices should/will drop, and quantity too.

Quarantine was imposed in Wuhan and much of Hubei province on January 20th. You can see that prices for this particular type of crude oil are down about 15%. I do not know what the little uptick on the right hand side is from (perhaps businesses in China beginning to buy more in advance of the quarantine hopefully being lifted, or alternatively, since stockpiles are always low relative to demand, perhaps the oil tanks in China have emptied out over a few weeks and need to be filled).
This has not translated yet clearly into retail gasoline prices in the U.S.

We’ve been in a bumpy decline in gas prices for about 9 months. I haven’t explored why that has happened (I’m just thinking about COVID-19). Anyway, you can definitely see that the decline has gotten steeper and smoother over the last month or so. Data like this is always a mix of different impulses and the propagation of those, but my guess is that most of that steep decline is due to COVID-19 in China.
Quantity is a little bit harder to track, and will take more time. International quantities are what’s really important, and states who control their oil industries don’t like to make that information public. We could look at just the U.S., but there’s a problem there: advances in horizontal drilling (mostly) and fracking (less so, and very overrated) are making production per well go up. So they are mostly shutting down rigs, even when demand is strong. Anyway, there is weekly data on rigs in operation from Baker Hughes, and I might expect this to decline in the coming weeks:

I should return to this data and take a look at in a month or so.