Oil prices fall on virus fears and ample supply
Brent crude and WTI hit seven-week lows in early trade, with JPM predicting an oil ‘price shock’ if a SARS-style epidemic develops
London — Oil prices fell on Thursday on concern that the spread of a respiratory virus from China could lower fuel demand if it stunts economic growth in an echo of the severe acute respiratory syndrome (SARS) epidemic nearly 20 years ago.
Brent crude futures were down 76c, or 1.2%, at $62.45 a barrel by 9.50am GMT, having earlier touched their lowest since December 4 after losing 2.1% in the previous session.
US West Texas Intermediate (WTI) futures fell 85c, or 1.5%, to $55.89 a barrel after earlier falling to the lowest since December 3. The contract declined 2.7% on Wednesday.
The new coronavirus has killed 17 people through respiratory illness since it emerged late last year in Wuhan, a city of 11-million people in central China. Nearly 600 cases have been confirmed, with cases detected as far as away as the US, and city authorities have shut transport networks, urging residents not to leave to prevent the contagion spreading.
The potential for a pandemic has stirred memories of the SARS outbreak in 2002/2003, which also started in China and dented economic growth and caused a slump in travel.
“Fundamentals are really being driven by virus fears. On a technical basis, there’s been a fight over the past six sessions but oil finally broke the 200-day moving average when it closed below that level yesterday,” said Olivier Jakob, of consultancy PetroMatrix.
Overseas airlines, along with rail operators from Hong Kong and elsewhere, have also started shutting down connections to Wuhan, essentially now in lockdown after guards blocked routes out of the city.
“We estimate a price shock of up to $5 [a barrel] if the crisis develops into a SARS-style epidemic based on historical oil price movements,” JPM Commodities Research said in a note. The US bank maintained its forecast for Brent to average $67 a barrel in the first quarter and $64.50 a barrel throughout 2020.
Amid all the demand concerns, however, supply remains plentiful. US crude stockpiles rose last week by 1.6-million barrels, against expectations of a drop, the American Petroleum Institute (API) said late on Tuesday.
Brazil also produced more than 1-billion barrels of oil in 2019, a first for the South American nation, the national oil regulator said on Wednesday.
China, meanwhile, released data on Thursday showing its petrol exports rose nearly a third last year thanks to new refineries.