Coronavirus Causes More Losses For Crude, While Libyan Shutdowns Described As "A Bullet In The Head"

Still, one analyst thinks traders have overreacted to the virus: File Image/PixaBay

Following a trend that began earlier this week, oil prices on Friday contributed to the worst week for the commodity since July, over growing concerns about the potential economic impact over the coronavirus from China.

The catalyst was provided by several analysts, who warned that a slowdown in that country's economy would impact demand because China is the world's largest crude oil importer, after importing a record 10.12 million barrels per day (bpd) in 2019.

The coronavirus so far has killed at least 26 people and spread to South Korea, Japan, Thailand, Vietnam, and the United States, among other places.

Consequently, Brent on Friday dropped 2.2 percent to settle at $60.69, bringing its weekly loss to roughly 6.4 percent, while West Texas Intermediate fell 2.5 percent, or $1.40, to settle at $54.19 per barrel (the fourth straight day of losses and declining 7.4 percent for a third consecutive week of declines).

John Freeman, analyst at Raymond James, told clients in a note that "When cities are placed under quarantine, and public transit is shut down, by definition that reduces economic activity and has a negative impact on energy demand, oil included.

"Once there is evidence that the outbreak is contained and thus economic disruption subsiding, sentiment on oil should improve, bringing prices back up."

While Freeman was generous in his understanding of crude trading patterns, Eric Lee, analyst for Citi, questioned the reaction by traders of the virus: "The sell-off following the outbreak of the coronavirus in China looks overdone, even for a market that increasingly shrugs off geopolitical risk."

Daniel Ghali, a commodities strategist at TD Securities, would presumably disagree with this assessment: he said, "The fear factor is the risk of contagion, synonymous to what happened in 2003 with SARS which led to a 2 percent drop in Chinese economic growth."

Not everyone's focus was on viruses, however: Sadiq Al-Kabir, central bank governor for Tripoli, on Friday called for the quick resolution of the recent blockade of major ports in Libya - which he says is damaging that country's economy.

He told media, "Now oil represents 93-95 percent of total revenue and covers 70 percent of total spending; this is a bullet in the head, that will hurt Libya and the Libyan people."

Meanwhile, as if to remind people that keeping the long view in mind is beneficial with regard to oil prices, Michael Wirth, CEO at Chevron, told CNBC that oil markets "have really changed over the last decade or so" and that in this current era of abundance, prices may not reach $100 for a 'long time."