Oil Posts Worst Week in a Year as Virus Selloff Deepens
January 25, 2020 EnergyNow Media
By Jackie Davalos
(Bloomberg) Crude posted the worst weekly decline in more than a year on concern that the spread of China’s coronavirus will cripple fuel demand.Brent futures sank 2.2% in London on Friday. Deaths from the coronavirus rose to at least 26 and China expanded travel restrictions for about 40 million people in an attempt to halt contagion. The U.S. is monitoring more than 60 people for potential infection and lawmakers said health authorities are expected to confirm a third case.The Asian virus has spooked traders even as the World Health Organization stopped short of declaring a global health emergency. The contagion is disrupting travel during the Lunar New Year holiday, when hundreds of millions normally fly or ride home. The selloff has accelerated as trend-following funds turned bearish, according to TD Securities.
“Contagion fears are spiking ahead of the biggest yearly migration ahead of new year,” said Daniel Ghali, a commodities strategist at TD Securities. “The fear factor is the risk of contagion, synonymous to what happened in 2003 with SARS which led to a 2% drop in Chinese economic growth.”
The fast-spreading virus is the latest challenge for a market that’s been buffeted this year by geopolitical turmoil in the Middle East and North Africa, as well as the phase-one trade deal between Beijing and Washington. Goldman Sachs Group Inc. said earlier this week that, if the coronavirus has an impact similar to the 2003 SARS epidemic, demand could be curbed by 260,000 barrels a day. While this is not the first time global oil markets contend with an epidemic threatening demand, the current supply environment could worsen the situation.
“The slightest fear of any economic slowdown will spur a long wave of liquidations because the market is so oversupplied,” said Walter Zimmermann, chief technical strategist at ICAP Technical Analysis.
Some businesses in China including McDonald’s Corp. and Starbucks Corp. temporarily shut some stores in efforts to contain the virus.
Brent crude for March settlement fell $1.35 to settle at $60.69 a barrel on the ICE Futures Europe exchange in New York putting its premium over WTI for the same month at $6.50 a barrel. Brent futures fell 6.4% this week.
West Texas Intermediate futures for March delivery slipped $1.40 to end the session at $54.19 a barrel on the New York Mercantile Exchange, the lowest level since October. Meanwhile, based on the commodity’s relative strength index, WTI is sitting in oversold territory and is due for a rally.
Options traders are paying the most since Oct. 31 for protection against price swings, according to the CBOE/CME WTI volatility index.
Other oil-market news
Gasoline futures fell 2.9% to settle at $1.5152 a gallon.
Drilling rigs targeting crude oil in the U.S. rose by 3 to 676, the highest in a month, according to Baker Hughes.
Brazil, which became a net oil exporter last year, wants to expand its footprint in global energy markets without joining OPEC.
Exxon was said to book the tanker Eagle San Antonio to lift the second oil cargo to be exported by Guyana
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