Oil falls to seven-week low as Asia virus eclipses supply loss

Image source: Business in Vancouver

Oil fell further after hitting a seven-week low on speculation that China’s coronavirus outbreak may dent demand, just as the market already contends with plentiful supplies.

Futures lost 1.6 per centin New York to trade below $56 a barrel as the world’s biggest oil importer effectively quarantined a major city to contain the SARS-like virus, which Goldman Sachs Group Inc. has warned could trim global demand. The alert has overshadowed any concern over the suspension of exports from Libya, where a militia leader has ordered ports to close.

Despite news of supply outages, oil prices have been falling noticeably,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. “Concerns about demand have definitely gained the upper hand, and are being fed by the further spread of the coronavirus in China.”

Oil is bearing the brunt of the anxiety due to the potential hit to travel, especially as it’s happening just before the Lunar New Year holidays, the biggest human migration in the world. The International Energy Agency says the market is “awash with oil,” while Goldman predicts the virus may crimp global demand by 260,000 barrels a day this year – with jet fuel accounting for around two-thirds of the loss ­ if the SARS epidemic in 2003 is any guide.

West Texas Intermediate futures for March delivery fell 92 cents to $55.82 a barrel on the New York Mercantile Exchange as of 10:27 a.m. London time, after dropping as much as 2.1% earlier. The contract lost 2.8 per cent on Wednesday. Brent futures declined by 84 cents, or 1.3%, to $62.37.

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China banned travel from Wuhan, a city of 11 million, in efforts to stop the spread of the new virus that has claimed at least 17 lives so far and infected hundreds. The World Health Organization delayed a decision on whether to declare the outbreak a public health emergency of international concern. The country is the biggest importer of oil, by far.

In Libya, most of the country’s 1.1 million barrels of oil production remains effectively shuttered after militia leader Khalifa Haftar closed ports while he haggles with the national government over a peace settlement. Talks to reach a compromise in Berlin at the weekend ended without a durable agreement.

© 2020 Bloomberg L.P.