Virus "Panic" Causes More Crude Losses And Collapse of LNG Prices

But Chevron's CEO is confident about a rebound for oil: File Image/PixaBay

With an abundance of grim headlines about the economic impact of China's coronavirus rounding out the week, it came as no surprise that crude prices took another hit: Brent lost 62 cents to settle at $54.50, while West Texas Intermediate dropped 61 cents to settle at $50.34.

Predominant in delivering grim forecasts on Friday was IHS Markit, which predicted that the coronavirus outbreak will be worse for the global economy than the 2003 SARS epidemic.

The data analysis firm wrote that during the SARS scare, China accounted for 4.2 percent of the global economy but now commands 16.3 percent of the world's GDP: "Therefore, any slowdown in the Chinese economy sends not ripples but waves across the globe" - especially considering China accounted for half of the world's demand growth in 2019.

Disruption and curtailment fears in China as a result of the coronavirus has also added pressure on Liquefied Natural Gas (LNG) prices, according to S&P Global Platts.

Ira Joseph, global head of power and gas analytics at S&P Global Platts, went on to say that his firm correctly predicted $3 Japan-Korea-Marker (the spot price for natural gas) would emerge this year, with the coronavirus outbreak acting as a catalyst for this historic price collapse (the commodity is currently about 30 percent below where it traded a year earlier).

However, Gloria Guevara, CEO of the World Travel and Tourism Council, pointed out that most of the potential economic cost of the outbreak "is not related to the virus, it's related to the panic."

In the similar spirit of defending the integrity of crude as a valuable commodity, Michael Wirth, CEO of Chevron, on Friday criticized oil's recent comparison to tobacco, stating, "If tobacco use were ceased today, I think the world would be just fine; if we ceased use of all hydrocarbon products today, the world would not be fine, and I think that's the reality."

Even though energy was the worst performing sector in 2019, Wirth said it can and will recover, and he remarked that "Commodity prices had a historic collapse last decade; they're still very low because we've got a well supplied market, and I think companies have had to re-size their investments accordingly.

"I think we just need to continue to deliver results quarter after quarter and I think the investment will be there."