Crude prices dropped 2 per cent to three-month lows overnight as the death toll from China’s coronavirus grew, clamping down on travel and fueling expectations of slowing oil demand.

Brent crude was down $US1.37 a barrel, or 2.3 per cent, at $US59.32. US crude was down $US1.06, or 2.0 per cent, at $US53.13 a barrel.

Both benchmarks had earlier fallen by more than 3 per cent and were at their lowest since October.

Global stock exchanges, which oil tends follows, also sank as investors grew increasingly anxious about the widening crisis. Demand spiked for safe-haven 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 February 2, trying to keep as many people as possible at home to prevent the virus from spreading further.

“This thing still in the process of rearing its ugly head and that’s why oil is taking this so hard because this could really turn into an acute drop in demand at least for a time,” said John Kilduff, partner at Again Capital LLC in New York.

Saudi Arabia and the United Arab Emirates, allies in the Organization of the Petroleum Exporting Countries, tried to play down the impact of the virus on Monday, with Riyadh, the de-facto OPEC leader, saying the group could respond to any changes in demand.

An OPEC source said there were “preliminary discussions” among OPEC+ for an extension of the current oil supply cuts beyond March, and a possible deeper cut was also an option, if there was a need, and if the China virus spread impacted oil demand.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud said 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.

OPEC and its allies including Russia, a group known as OPEC+, has been withholding supply to support oil prices for nearly three years and on January 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 almost a fifth since a spike in tensions between the United States and Iran briefly lifted prices above $US70 a barrel on January 8.

The losses since are in spite of a 75 per cent drop in output from Libya to less than 300,000 bpd due to an ongoing blockade of oilfields.