Oil prices were down early on Friday for a fourth consecutive session, as fears of the deadly Chinese virus spreading and concerns about oil demand trumped supply outages and set prices on course for a 5-percent weekly loss.
Oil prices hit their lowest since late November early on Friday. As of 09:52 a.m. EDT on Friday, WTI Crude was down 1.89 percent at US$54.54, while Brent Crude traded down 1.73 percent at US$60.22.
This week started on the bullish note for oil prices, after a port blockade in Libya that began in the weekend threatened to cut off the entire oil production of OPEC’s African member. The market was concerned, for a few hours, about the implications of a 1.2-million-bpd supply outage.
But then on Tuesday, despite the continued blockade in Libya, oil prices started to slip as market participants became jittery over the deadly virus in China, which, analysts say, could cut oil demand as travel restrictions in and around the area of the outbreak are already in place.
The SARS CoV, better known as the SARS Coronavirus, is highly contagious, and Goldman Sachs estimates that the oil market could see a drop of 260,000 barrels per day in the global oil demand market—170,000 bpd of which would be in the form of jet fuel. Goldman Sachs analysts expect that demand erosion to translate into nearly US$3 a barrel decline in oil prices.
Since Goldman came up with that estimate, oil prices have already dropped by more than US$3 a barrel.
On Thursday, oil prices continued to fall and not even a modest crude oil inventory draw of 400,000 barrels for the week to January 17 managed to move prices higher.
“Like much of last year, this latest development illustrates well that the market continues to focus more on macro events, rather than specific market fundamentals - the downward price action a result of the virus more than offsetting the gains seen following Libyan supply disruptions,” ING strategists Warren Patterson and Wenyu Yao said on Friday.
“One would also think the supply losses from Libya would far outweigh the potential demand losses from the Wuhan virus,” they added.
By Tsvetana Paraskova for Oilprice.com
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