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Why $40 Oil Is A Real Possibility

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are in a position to finish the week sharply lower as well as natural gas futures which pierced the psychological $2.00 level earlier in the week, seemingly on its way to the multi-year low of $1.60.

The catalyst behind the selling pressure is the concern that a virus in China may spread, hurting travel and fuel demand. China is the world’s second-largest oil consumer so any slowdown in travel would show up on its demand forecasts.

This news is overshadowing OPEC and its allies’ cuts in supply and an unexpected drop in U.S. weekly inventories.

Threat of Coronavirus Spreading

The deadly pneumonia-like coronavirus was first identified on December 31 in the Chinese city of Wuhan in Hubei province. It has since spread beyond Wuhan, which has a population of 11 million, to other major cities such as Beijing, Shanghai, Macao, and Hong Kong.

Multiple cases of the virus has been confirmed in Thailand, Vietnam, South Korea and Japan, while the United States, Taiwan and Singapore have each reported one case

Multiple Lockdowns Should Pressure Demand

As of Friday, 10 cities were put under lockdown measures with a total of about 33 million people. Transportation services in Wuhan, the epicenter of the virus, were shut down on January 23 and people were asked to not leave. The airport and train station in the city were also temporarily closed.

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