Global equities fell sharply on Monday as fears over the spread of the coronavirus spiked once again, with new cases spreading beyond the borders of China. The Dow Jones plunged by more than 900 points and oil prices slumped nearly 5 percent.
Several countries reported new cases of the virus, including Iran, Italy and South Korea. Roughly 29 countries have reported cases, although mostly in small numbers as of now. But the World Health Organization warned that the “window of opportunity” to head off the spread of the virus could be closing.
One of the more concerning developments is that coronavirus cases are popping up in people who haven’t traveled to China or who have come in contact with confirmed cases, which shows that “it’s not clear how the virus is spreading,” a spokeswoman for the WHO said. “We're seeing some cases that don't have a clear epidemiological link.”
The U.S. Centers for Disease Control and Prevention (CDC) warned that “more cases are likely to be identified in the coming days” in the United States, although it said that the “immediate health risk” is “low.” Still, the CDC said that if virus began to spread in earnest in the U.S., “public health and healthcare systems may become overloaded.”
Finance ministers from the G20 acknowledged the threat to the global economy as they gathered in Riyadh this week. The IMF cut its growth forecast for China from 6 percent to 5.6 percent. The Fund cut its global GDP growth estimate by 0.1 percent, but said that the impact could be much larger if the coronavirus spreads or lasts longer.
The Wall Street Journal reported on the extensive congestion at Chinese ports, with cancellations of dozens of cargo ships. Some container ships are departing China at only 10 percent full, not even enough to cover fuel costs. Related: Oil Prices Tumble 4% As Coronavirus Demand Shock Spreads
China’s oil demand has already suffered a huge blow, so the prospect that other countries might start implementing various forms of lockdown procedures raises even more questions about demand.
“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,” Stephen Innes, chief market strategist at AxiCorp, wrote in a note.
Raymond James put out an updated estimate on February 24, forecasting a hit to global oil consumption on the order of 1.5 million barrels per day (mb/d) for the first quarter. It assumes the situation improves in the second quarter, with demand 1 mb/d lower than might otherwise be the case had the virus not occurred.
Raymond James acknowledges that it cannot rule out “the prospect that international travel grinds to a halt not only to/from China, but in other regions as well…but at this point it seems premature to paint such a dire picture.” The investment bank lowered its 2020 Brent forecast to $65 per barrel, but says that the market will tighten up next year, pushing prices up to $80. Related: Oil Rig Count Inches Higher In Coronavirus Plagued Markets
However, everyone keeps assuming the virus clears up pretty quickly. But as the spread of the virus to Italy and Korea demonstrate, the crisis could continue to grow worse.
“Accordingly, there is a greater need for OPEC and its allied non-OPEC producers to cut production more sharply,” Commerzbank wrote in a note on Monday. “However, the alliance between Saudi Arabia and Russia appears to be hanging in the balance due to the virus-related decline in demand.”
OPEC+ is scheduled to meet at the end of next week, but disagreement between Russia and Saudi Arabia adds a dose of uncertainty to the outcome of that meeting. In recent weeks, cuts on the order of 500,000 or 600,000 bpd seemed to be all but a foregone conclusion.
Now, Saudi Arabia is reportedly in talks with the UAE and Kuwait on a joint cut of about 300,000 bpd. Unable to count on Russia, the Gulf States may act on their own, although it’s not clear that the move will be sufficient.
By Nick Cunningham of Oilprice.com
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Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. More