Oil drops below $60 on China virus

Saudis say coronavirus impact on oil demand limited

LONDON: Crude prices extended declines yesterday, dropping below $60 for the first time in nearly three months, as the death toll from China’s coronavirus rose and more businesses were forced to shut down, fuelling expectations of slowing oil demand. Brent crude was down $1.51 a barrel, or 2.5 percent, to $59.18 at 1254 GMT, its lowest since late October and the biggest intra-day fall since Jan 8. US crude was down $1.37, or 2.53 percent, at $52.82. Both contracts had earlier fallen by more than 3 percent.

Global stock exchanges also fell as investors grew increasingly anxious about the widening crisis. Demand spiked for safehaven assets, such as the Japanese yen and Treasury notes.

The death toll from the coronavirus rose to more than 80 and the Chinese government extended the Lunar New Year holiday to Feb. 2, trying to keep as many people as possible at home to prevent the virus from spreading further. The rapid spreading of the virus fuelled fears of slowing oil demand and raised speculation that OPEC and its allies including Russia, a group known as OPEC+, would consider deepening production cuts. Saudi Arabia and the United Arab Emirates, allies in the Organization of the Petroleum Exporting Countries (OPEC), tried to play down the impact of the virus yesterday, with Riyadh, the de-facto OPEC leader, saying the group could respond to any changes in demand.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud said yesterday he felt confident the new virus would be contained. Markets are being “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite (the virus’) very limited impact on global oil demand,” the minister said.

“Such extreme pessimism occurred back in 2003 during the SARS outbreak, though it did not cause a significant reduction in oil demand,” Prince Abdulaziz said in a statement. The OPEC+ group has been withholding supply to support oil prices for nearly three years and on Jan 1 increased an agreed output reduction by 500,000 barrels per day (bpd) to 1.7 million bpd through March.

OPEC+ “have the capability and flexibility needed to respond to any developments, by taking the necessary actions to support oil market stability, if the situation so requires,”

Prince Abdulaziz said. Brent crude oil prices have dropped by more than 14 percent since a spike in tensions between the United States and Iran briefly lifted prices above $70 a barrel on Jan. 8.

Shares dive

World shares slipped to their lowest in two weeks yesterday as worries grew about the economic impact of China’s spreading coronavirus, with demand spiking for safehaven assets such as Japanese yen and Treasury notes. The death toll from the coronavirus outbreak in China rose to 81 and the virus spread to more than 10 countries, including France, Japan and the United States. Some health experts questioned whether China can contain the epidemic.

By midday in London, MSCI’s All-Country World Index , which tracks shares across 47 countries, was down 0.6 percent to its lowest since Jan 9. In Europe, stock markets slumped at the start of trading, tracking their counterparts in Asia. The pan-European STOXX 600 index fell 2 percent to its lowest level since Jan. 6, and the Euro Stoxx 50 volatility index jumped to its highest level since December.

“The coronavirus is an economic and financial shock. The extent of that shock still needs to be assessed, but it could provide the spark for an arguably long-overdue adjustment in the capital markets,” Marc Chandler, chief market strategist at Bannockburn Securities, told clients.

In Asia, Japan’s Nikkei average slid 2.0 percent, the biggest one-day fall in five months. A Tokyo-listed China proxy, ChinaAMC CSI 300 index ETF, fell 2.2 percent. Many markets in Asia were closed for the Lunar New Year holiday.

US S&P 500 mini futures were last down 1.36 percent, suggesting an open in the red on Wall Street later. The VIX volatility index, also known as Wall Street’s “fear gauge”, hit its highest levels since October. — Reuters