Oil prices tumbled for a fifth day overnight to their lowest in more than a year, as further novel coronavirus cases outside China fanned fears that a pandemic could slow the global economy and erode demand for crude.
Brent crude dropped $US1.25, or 2.3 per cent, to settle at $US52.18 a barrel, off the session low of $US50.97 a barrel, the lowest since December 2018. West Texas Intermediate (WTI) futures sank $US1.64, or 3.4 per cent, to $US47.09, after hitting their lowest since January 2019.
For the first time since the outbreak erupted, the number of new coronavirus infections outside China exceeded new Chinese cases.
Trading in oil markets suggested investors expect a prolonged period of oversupply, with demand hurt as the virus has spread to large economies including South Korea, Japan and Italy.
“Oil is in freefall as the magnitude of global quarantine efforts will provide severe demand destruction for the next couple of quarters,” said Edward Moya, senior market analyst at OANDA in New York.
“The first US case of unknown origin has energy markets preparing (for) a prolonged deep drop in demand for crude.”
The crude market is watching for possible deeper output cuts by the Organisation of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+, set to meet in Vienna on March 5-6. The group is currently reducing supply by roughly 1.2 million bpd to support prices.
Consultants Facts Global Energy forecast oil demand would grow by 60,000 barrels per day in 2020, a level it called “practically zero,” due to the outbreak.
The virus outbreak would likely trim China’s economic growth this year to 5.6 per cent, down 0.4 percentage point from its January outlook, and shave 0.1 percentage point from global growth, IMF Managing Director Kristalina Georgieva said.
US gasoline futures tumbled as much as 5.5 per cent to $US1.3742 a gallon, the lowest since late January 2019. Heating oil futures dropped about 0.7 per cent to settle at $US1.4892 a gallon, after hitting the lowest since July 2017.
Businesses in China have started to reopen as the number of new cases on the mainland has waned.
“It makes me think that the downside here now moves from crude to products should the virus continue to grow outside of China as their rates return, exports surge and perhaps the rest of the market isn’t there to take it from them,” said Scott Shelton, energy broker with ICAP in Durham, North Carolina.
Margins for producing distillates – heating oil, diesel fuel and jet fuel – have hit their lowest levels since 2017 due to fears of reduced demand.
Global equities resumed their plunge, wiping out more than $US3 trillion in value this week alone.
For both Brent and WTI, the spread between December 2020 futures and December 2021, a popular trade used as a barometer for supply expectations, fell firmly into negative territory. Both spreads hit the widest levels since January 2019, signaling erosion in demand could lead to a glut through the end of this year.
Saudi Arabia, the world’s top oil exporter, is reducing crude supplies to China in March by at least 500,000 barrels per day (bpd) due to slower refinery demand following the coronavirus outbreak, two sources with knowledge of the matter said.