Rising Coronavirus Death Toll Causes Three Month Low Crude Prices

Analyst warns to expect erratic trading behaviour in the near future: File Image/PixaBay

The lockdown of a growing number of cities and cancelled flights in China due to the spreading coronavirus kindled fears of slowing oil demand and on Monday caused crude prices to drop 2 percent to three-month lows.

As the death toll from the virus rose to 81 and the Chinese government tried to keep its population home-bound to curtail infection, Brent shed $1.37, or 2.3 percent, to settle at $59.32 per barrel.

West Texas Intermediate dropped $1.05, or 1.9 percent, to settle at $53.14 per barrel, its lowest since October 2.

John Kilduff, founding partner at Again Capital, remarked, "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."

Counterbalancing the bad news somewhat was the Organization of the Petroleum Exporting Countries (OPEC), an unnamed source of which told media there were "preliminary discussions" for an extension of the current output cuts beyond March and possibly even deeper cuts if required.

Also mitigating the prospect of oversupply and weakening demand  - albeit a disaster in the making for its citizens - was news from Mustafa Sanalla, chairman of state oil firm NOC, that Libya's oil production has fallen to 262,000 barrels per day (bpd) and could decline to 72,000 bpd very soon (the country's major oil ports and have been blocked by forces loyal to Khalifa Haftar for over a week).

Additionally in oil's favour is the prospect that the coronavirus may be curtailed - which prince Abdulaziz bin Salman Al-Saud, energy minister for Saudi Arabia, is confident will occur - and will regardless have minimal damaging effect for the commodity.

That was the view expressed on Monday by Mohamed Arkab, president of OPEC; he stated that "The impact on the prospects for the world oil demand would be low," and that the cartel "is closely monitoring the development of the oil market in conjunction with the development of the recent coronavirus epidemic."

But the general view is that producers are more concerned than they are letting on, and John Carey, former deputy CEO of ADNOC Distribution, shared his opinion about what lies ahead by telling media that "Whilst I think oil prices will drop and probably stay down for a few months - as they did after the SARS virus - I think there is a lot of work gone on in the [Middle East] region to actually protect it."

"I think it is going to bounce around [and] I think you are going to see spikes."