Oil tumbles below $50/bbl with virus sapping Chinese demand
NEW YORK (Bloomberg) -- Oil fell below $50/bbl for the first time in more than a year as China’s oil consumption was said to plunge by 20% amid the spread of coronavirus, threatening what could be the largest demand shock since the since the global financial crisis.
Futures sank as much as 3.2% in New York and 4.2% in London on Monday as oil demand in the world’s biggest importer dropped by around 3 MMbpd, according to people with inside knowledge of the country’s energy industry. The front-month Brent contract sank to a discount below further out futures for the first time since July, another sign of slack demand for crude.
The loss of demand as the world’s’ second-largest economy quarantines cities to limit the outbreak is starting to ripple around the globe, as some Chinese refineries slow down or halt operations. Concerns that a global glut will form may force OPEC and its allies to hold an emergency meeting to discuss cutting crude production further in an effort to stabilize prices.
“The fears are justified when you consider just how massively important China is to oil demand,” said Robbie Fraser, senior commodities analyst at Summit Energy Services. “The sentiment has been bearish for a while and you have the data backing it up.“
Oil dives to one year lows as the virus hits demand Beijing has locked millions of people in quarantine and the New Year holiday has been extended. Flights have been canceled and authorities across the globe are trying to contain the virus’s spread. Traditionally during the New Year holiday, gasoline and jet-fuel demand increase as hundred of millions go back home, while gasoil consumption drops as industrial activity slows.
Citigroup Inc. slashed its price forecasts for across commodities as it said the impact of the coronavirus looks much worse than it initially thought.
Chinese government measures amount to a “major shutdown of the economy” and even with a deeper OPEC+ production cut it will drive weaker oil balances, Ed Morse, the global head of commodities research, said in a note. “There would be critical knock-on indirect effects for all commodities.”
Brent for April delivery fell $2.26 to $54.36/bbl at 11:50 a.m. on the London-based ICE Futures Europe exchange after sinking to $54.27, the lowest level a year. The April contract traded as much as 12 cents below May futures.
West Texas Intermediate for March delivery lost $1.53 to $50.03 on the New York Mercantile Exchange, after touching $49.92.
Chinese refineries are storing unsold petroleum products such as gasoline and jet fuel, according to the executives. But stockpiles are growing every day, and some refineries may soon reach their storage limits. If that were to happen, they would have to cut the amount of crude they process. One executive said that refinery runs were likely to be cut soon by 15-20%.