Oil prices tumble as fears grow over spread of coronavirus
The price of crude has fallen heavily as fears grow over the deadly coronavirus outbreak in China and its potential impact on the wider global economy.
First announced at the end of December, the true scale of the outbreak is currently proving hard to predict.
But with the death toll already rising from 2 to 81, and more than 2,700 cases now confirmed on the Chinese mainland – around 500 of which are believed to be critical – fears are growing that the flu-like virus could dent the global economy as global travel is curtailed and Chinese growth slows. China is the world’s biggest oil importer.
Said analysts at Rabobank: "As the human cost continues to rise, investors have become increasingly concerned about the potential economic consequences of the disease.
"The Nikkei 225 has closed down 2% and prices of copper, iron ore and oil have slumped as investors anticipate supply chain disruptions across several industries and a broad slowdown in economic activity."
As at 1030 GMT, Brent crude oil futures were $58.68 per barrel, a 3% decline; at the start of January, they were trading at nearly $69 per barrel. West Texas Intermediate futures were also down, trading close to $52 after losing more than 3%.
In separate note, also published on Monday, Rabobank said: "Notably, China only launched a nationwide effort to contain SARS in April 2003, which argues that either the current outbreak occurred sometime before it was officially acknowledged on 30 December, or it is spreading at a much faster rate.
"China’s announcement that the current virus can be transmitted before its symptoms become evident is likely feeding into the latter concern and further weighing on sentiment. Also stoking fears as to the scale of the challenge, and the associated economic fallout, is the Chinese authorities decision to extend the New Year holidays to 2 Febuary from 30 January."
Neil Wilson, chief markets analyst at Markets.com, said: "This has the potential to really rattle markets. And with stock markets having been at or very near all-time highs before all this broke, this is a perfect selling opportunity.
"The problem is for most investors this is just not a risk event they are prepared for – a true black swan in the making. If politics is hard to grasp for most buysiders, then virology is impossible. That is enough reason to see de-risking to happen, although I would still anticipate dips to be bought.
"This is going to get a whole lot worse before it turns. As with SARS though, I would expect a significant rebound once – or indeed before – the worst is over."
Prince Abdulaziz bin Salman Al-Saud, Saudi Arabia’s energy minister, looked to calm the situation, saying that OPEC would help balance the oil market in response. He also argued that markets were being "primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand".
"Such extreme pessimism occurred back in 2003 during the SARS outbreak though it did not cause a significant reduction in oil demand," he said.
But Craig Erlam, senior market analyst at Oanda, said: "Given the number of people travelling at this time of year, it’s hard to imagine these numbers not rising over the coming days. It’s just a question of by how much.
"While I’m no fan of thinking about the economy and markets at times like this, it is clear there are going to be knock-on effects. A 28.8% decline in travel numbers clearly highlights how severe the situation is, and we’ll see plenty more numbers in coming weeks that could be just as ugly, if not worse."