Oil prices plummeted by 4 percent early on Monday as the coronavirus spread outside China and Asia, rekindling fears that a protracted global outbreak would impact economic growth and oil demand around the world.
At 8:27 a.m. EST on Monday, WTI Crude was plunging by 3.73 percent at $51.40 and Brent Crude was tumbling 3.75 percent at $55.78, after Italy reported a sharp rise of coronavirus cases over the weekend, with more than 200 infected people as of Monday—the biggest outbreak outside Asia so far.
A fifth person has died of the coronavirus in Italy, local media reported today, while authorities are imposing sweeping restrictions to public gatherings in many cities in Italy’s wealthy economic engine in the regions of Veneto and Lombardy. Schools and businesses have suspended activities, fashion designer Giorgio Armani showed his latest collection at the Milan fashion week in an empty theater and streamed the event, while the Venice carnival was cut short.
While Italy is so far the worst outbreak outside Asia, South Korea has also seen a surge in coronavirus cases in recent days.
The market panic that the coronavirus may now become a global pandemic sent all Asian and European stock markets deep into the red on Monday, with the blue-chip index in Milan tumbling by 5 percent early afternoon local time.
The renewed fear of slowing economic growth and lower oil demand growth gripped the oil markets, which followed the equity markets sell-offs. Related: The Complete Guide To FID’s
“We should not underestimate the economic disruption, as a super spreader could trigger a massive drop in business activity around the globe of proportions the world has never dealt with before,” AxiCorp’s chief market strategist Stephen Innes said in a note, as carried by Reuters.
“We believe the virus’ effect on oil demand will shave some 400,000 barrels a day from global consumption growth, taking us to the lowest level in nearly a decade,” ING’s Head of Commodity Strategy, Warren Patterson, said on Monday.
Due to the demand destruction from the outbreak, ING now sees Brent Crude prices averaging $55 a barrel in Q1, and just $59 per barrel for the full year.
By Tsvetana Paraskova for Oilprice.com
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Therefore, one shouldn’t be surprised if global oil demand is affected bringing oil prices lower. The market is panicking in case the outbreak become a global pandemic.
Aside from the very strict measures being implemented to combat the outbreak, both the global economy and the oil market can only wait to see where it will end.
Until the outbreak is contained and business is back to normal, no one can accurately quantify the eventual impact of the outbreak on global oil demand and China’s and also on prices. Therefore, any price or demand forecasts are no more than guesswork.
One thing to guard against is exaggerated and outlandish estimates of loss of oil demand by the global oil market.
Whether global oil demand growth is slashed by 400,000 barrels a day (b/d) by ING or 378,000 b/d by the US Energy Information Administration (EIA) or 365,000 b/d by the International Energy Agency (IEA) or 230,000 b/d by OPEC, global demand is still projected to range from 102.03-102.20 million barrels a day (mbd) in 2020 compared with 101.23 mbd in 2019 as things stand currently.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London