SINGAPORE: Middle East crude benchmarks weakened on Friday on expectation of lower demand from China in the wake of the coronavirus outbreak, with prompt Dubai inter-month swaps flipping into contango for the first time since January 2019.

Traders doubt that a proposal for the Organization of Petroleum Exporting Countries (OPEC) and allies led by Russia to cut output by another 600,000 barrels per day (bpd) would be enough to tighten supplies.

Middle East producers Saudi Aramco and Abu Dhabi National Oil Company have already cut term crude prices sharply on weak demand. 

Chinese refiners are estimated to have cut more than 1 million bpd of crude throughput in February following a sudden drop in demand after flights were cancelled and factories extended closures after the Lunar New Year in response to the epidemic in the country.

Michal Meidan of the Oxford Institute for Energy Studies said run cuts are set to rise to 1.5 million to 2 million bpd in February and depending on how domestic prices fare, could extend to March too.

China's state refiners Sinopec, PetroChina and CNOOC were seeking to cut their term crude supply allocation with Saudi Aramco, while Chinese buyers were trying to push back loading dates for prompt cargoes, traders told Reuters.

North Asian refineries have scheduled maintenances in the second quarter which will further reduce Asia's crude demand.

"The reaction to the coronavirus is already causing widespread losses in economic activity and oil demand," Singapore-based analysts at Energy Aspects said..

"Prompt Brent and Dubai spreads have moved into contango, but this would be because the market is betting that the coronavirus will cause a prolonged demand shock versus their belief that Libyan supply will return soon," they said. The United Nations expects eastern Libyan tribal leaders to submit their list of conditions to reopen blocked oil terminals, United Nations envoy Ghassan Salame said on Thursday, pressing for a resumption of oil exports. 

The March/April Dubai inter-month spread was pegged at minus 9 cents a barrel at the Singapore market's close on Friday, Refinitiv data showed. Spot premiums for cash Dubai and DME Oman also hit their lowest since January 2019.

In a contango market prompt prices are lower than future months, indicating ample spot supplies.

Energy Aspects has cut its first quarter Chinese oil demand estimate by 700,000 bpd, to a 200,000 bpd drop year on year, and has also reduced its full-year global demand growth forecast to 900,000 bpd.

It also slashed its global refinery runs forecast by 1.1 million bpd for the first quarter, taking year on year growth for 2020 to 900,000 bpd.

China's Sinopec Corp, Asia's largest refiner, cut its crude throughput this month by around 600,000 bpd. Independent refineries in east China's Shandong province known as "teapots" have slashed operations by 30-50% to below half of their capacity, a level unseen since at least 2015.

(Reporting by Shu Zhang and Florence Tan Editing by David Goodman & Simon Cameron-Moore) ((shu.zhang@thomsonreuters.com; +65-6870-3549; Reuters Messaging: Twitter @shuzhang4))