Oil Sinks to 7-Week Low As Growing Viral Threat to Hurt Demand

Futures lost more than 2% in New York on Wednesday. Goldman Sachs warned that global oil demand may slip by 260,000 barrels a day.

23 Jan 2020, 05:24 AM IST

Oil Sinks to 7-Week Low As Growing Viral Threat to Hurt Demand

A pipe leaks oil at a facility. (Photographer: Bloomberg)

(Bloomberg) -- Oil declined to a seven-week low on concerns that a deadly virus that’s spreading from China will crimp energy demand in a market already awash with supplies.

Futures lost almost 4% in New York on Wednesday as the death toll from the virus climbed, travel restrictions were imposed on the city from which it emerged, and the World Health Organization mulled an international emergency declaration.

The coronavirus outbreak panicked traders because of the deleterious impact epidemics can have on travel and demand for transport fuels. The WHO is scheduled to meet again Thursday to plot a strategy. The price slump deepened after the American Petroleum Institute reported a 1.57-million barrel jump domestic crude inventories.

The oil-price decline “is a manifestation of worries about global oil demand,” said Stewart Glickman, an analyst at CFRA Research.

Goldman Sachs Group Inc. warned that global oil demand may slip by 260,000 barrels a day this year as a result of the respiratory virus. If the 2003 SARS epidemic is any guide, this new outbreak could shave almost $3 from the price of a barrel of crude, the bank said.

See also: Coronavirus Could Bite Commodities If SARS Is Any Guide: Chart

“We could see weaker Chinese oil demand over the next several weeks or even longer,” said Leo Mariani, energy analyst at KeyBanc Capital Markets Inc. “Going into the Chinese New Year, we tend to see outside travel throughout China and there’s big concerns about a demand shock.”

West Texas Intermediate futures for March delivery fell $2.30 to $56.08 a barrel at 4:59 p.m. on the New York Mercantile Exchange. Brent for March settlement dropped $1.91 to $62.68 on the London-based ICE Futures Europe exchange putting its premium over WTI at $6.60 a barrel.

Supply Threats

The market’s response to the halt of exports from OPEC member Libya has been muted as record U.S. production is forecast to expand already-swollen inventories. Separately, Kuwait plans to resume output at the Wafra field it shares with Saudi Arabia within weeks, ending a hiatus that’s lasted more than four years.

Oil has fallen more than 8% since the end of 2019 as geopolitical supply threats and a truce in the U.S.-China trade war failed to sustain optimism.

Other oil-market news
Royal Dutch Shell Plc invoked a clause to suspend deliveries of its Bonny Light crude stream from Nigeria. U.S. efforts to rein in OPEC’s influence over global oil markets are losing momentum as the Trump administration takes a wait-and-see approach to energy prices. The bosses of some of the world’s biggest oil companies discussed adopting much more ambitious carbon targets at a closed-door meeting in Davos, a sign of how much pressure they’re under from activists and investors to address climate change.

Other oil-market news

Royal Dutch Shell Plc invoked a clause to suspend deliveries of its Bonny Light crude stream from Nigeria.
U.S. efforts to rein in OPEC’s influence over global oil markets are losing momentum as the Trump administration takes a wait-and-see approach to energy prices.
The bosses of some of the world’s biggest oil companies discussed adopting much more ambitious carbon targets at a closed-door meeting in Davos, a sign of how much pressure they’re under from activists and investors to address climate change.

--With assistance from Grant Smith.

To contact the reporters on this story: Jackie Davalos in New York at jdavalos10@bloomberg.net;Sheela Tobben in New York at vtobben@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Joe Carroll, Catherine Traywick