WASHINGTON—As the new coronavirus epidemic continues to spread across China, fears of reduced travel and a global economic slowdown sent oil prices plummeting over the past week.
West Texas Intermediate (WTI) crude fell on Jan. 31, posting a fourth straight week of losses and its worst month since May 2019.
In response to threats posed by the deadly virus, the Organization of the Petroleum Exporting Countries (OPEC) decided to hold an emergency meeting. Both OPEC members and non-member countries including Russia will meet on Feb. 4–5 to gauge the impact of coronavirus on global oil demand, according to Reuters.
WTI plunged more than 20 percent to $51.59 per barrel on Jan. 31 since it peaked at $65.65 in early January following tensions between the United States and Iran.
Global travel restrictions imposed on Chinese travelers and suspension of flights to mainland China have raised questions about their potential impact on oil and jet fuel markets.
The Trump administration declared on Jan. 31 a public health emergency in the United States. To contain the spread of the coronavirus, foreign travelers who visited China in the past two weeks would be denied entry to the United States, Health and Human Services Secretary Alex Azar declared.
In addition, U.S. citizens returning from Hubei Province, where the outbreak started, will be subject to 14 days of mandatory quarantine.
Dozens of countries, including Japan and Singapore, have also imposed tougher restrictions on travelers from China.
United, Delta, and American Airlines announced they would suspend flights between the United States and China in response to the growing outbreak. Similarly, major global airlines, including KLM and British Airways, have suspended or reduced services to or from mainland China.
These measures are threatening oil markets, according to Phil Flynn, a senior energy analyst at Price Futures Group in Chicago.
“That’s oil demand that isn’t going to be there, but it’s even bigger than that,” Flynn told Fox Business on Jan. 31.
“It’s the factories that are shut down. It’s the fear factor of people not traveling. That’s terrible for energy demand,” he said.
Consumer confidence would be hit hard as people are afraid to shop or go to restaurants and movie theaters, which he noted, are all bad news for oil prices.
Oil Price Volatility
OPEC earlier signaled it might further cut production if demand declines. Demand concerns, however, will likely counter worries around supply disruptions in Libya, driving oil price volatility in the coming weeks, analysts say.
Early January, an escalating crisis in Libya crippled oil production, causing fears of a global supply crunch. The Libyan National Army, led by Gen. Khalifa Haftar, seized control of Libya’s major oil ports and imposed a blockade on the country’s oil exports.
The extent of the coronavirus outbreak in China will remain unknown for some time, according to Goldman Sachs, and this initial uncertainty could lead to large sell-offs in oil markets, as was the case with the severe acute respiratory syndrome (SARS) epidemic in 2003.
“Translating the estimated SARS demand impact into 2020 volumes points to a potential 260,000 barrels per day negative shock to global oil demand on average,” Damien Courvalin, head of energy research at Goldman Sachs, stated in a report.
“Such a demand impact—without an OPEC supply response—would point to an only $3 per barrel impact on oil prices, although the initial high uncertainty could lead to a larger sell-off,” he wrote.
Chinese officials report thousands being infected in China and more than 300 dead. However, experts say the actual numbers are much higher.
Mishandling Increases Market Panic
Some voice frustration about the Chinese regime’s initial handling of the crisis, which, they claim, has exacerbated the market panic.
“China’s response to this has been extremely disappointing to many people,” Gordon Chang, commentator and author of “The Coming Collapse of China,” told The Epoch Times.
“The government of China tried to cover it up. And when they couldn’t cover it up anymore, it then became a cause of panic,” he said.
“Right now, they are in a different environment because of social media, which is forcing them to become more candid more quickly.”
“But their instinct is to cover up and hide because they’re so much more concerned about stability and about controlling the narrative than they are about solving the problem.”
According to a New York Times article, the Chinese regime’s delayed handling of the disease allowed the virus to spread rapidly.
“At critical moments, officials chose to put secrecy and order ahead of openly confronting the growing crisis to avoid public alarm and political embarrassment,” the article said.
It took seven weeks for the government to lock down Wuhan City after the appearance of the first symptoms of the disease in early December, according to the newspaper.