Virus impacts oil prices

Demand weakens as global travel slows

WITH the coronavirus out- break spreading to more countries, the price of oil has dropped precipitously as global demand weakens even further.

That has sent shares tumbling for oil giants like Exxon and Chevron while smaller producers with idling rigs continue to slash jobs.

Hundreds of new cases of the virus that causes the Covid-19 disease have been announced in recent days outside of China.

Oil industry analysts fear that what they thought was a contained disruption may instead lead to more travel restrictions and even less oil consumed.

“That was the fear all along, that the virus would not be contained in China,” said Claudio Galimberti, head of demand, refining and agriculture at S&P Global Platts. “There are entire cities, and in some cases regions, that are in a lockdown. When you begin to have a lockdown, people work from home, factories shut down, people don’t travel. The impact on oil is very, very bad.”

Oil prices fell dramatically in mid-february, but had been steadily climbing back as the number of new cases of the virus in China slowed. In the last week, however, reports of the spreading virus knocked prices down. The benchmark for US crude oil fell 16 per cent during the week, settling on Friday at $US44.76 a barrel. Brent crude, the international standard, dropped 14 per cent for the week to its lowest levels since July 2017, closing on Friday at $50.52 a barrel.

Meanwhile, shares of Exxon Mobil tumbled to $US49.82 on Thursday, reaching a 15-year low, before rebounding more than 3 per cent on Friday. Chevron Corp shares hit their lowest level in nearly four years on Friday.

The Financial Times reported that Saudi Arabia was pushing for deep cuts in oil production to help stabilise prices in the face of falling demand. The newspaper, citing people familiar with the talks, said the Saudis proposed to bear most of the brunt of a cutback of one million barrels per day but wanted Russia and other big producers to join them. Representatives of OPEC and allies like Russia plan to meet next week.

If demand for oil and the price of a barrel continues to fall, that may result in lower fuel prices – a potential bright side for consumers.