Spreading virus hurts oil industry

WITH the viral outbreak 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 such as 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.

The list of countries touched by the illness has climbed to nearly 60 as Mexico, Belarus, Lithuania, New Zealand, Nigeria, Azerbaijan, Iceland and the Netherlands reported their first cases. More than 85,000 people worldwide have contracted the illness, with deaths topping 2900.

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 past 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 $US50.52 a barrel.

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, who account for about 70 per cent of US economic activity.

When the coronavirus first hit, the Energy Information Administration predicted global oil demand would fall to 100.3 million barrels per day in the first quarter of 2020.

ING head of commodities strategy Warren Patterson said he expects travel restrictions and factory shutdowns caused by coronavirus to shave 400,000 barrels a day from global consumption growth, which would take the industry to its lowest level of consumption in a decade.