Oil Holds Near Three-Month Low as Virus Threatens Chinese Demand
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Oil traded near the lowest close since mid-October as the market was dominated by alarm that the deadly coronavirus will hurt economic activity in China and beyond.
Futures held near $53 a barrel in New York, after losing 9% during five straight days of declines to Jan. 27, on concern reduced travel will hit jet fuel demand in the world’s biggest oil importer. Chinese authorities have locked down cities with a combined 50 million people around the outbreak’s epicenter in Wuhan, and will stop individuals traveling to Hong Kong.
Fatalities increased to 106 in China, and infections have been reported throughout Asia as well as in the U.S., France, Canada and Germany.
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Flight activity in the five airports closest to Wuhan plunged 48% from the previous week, while aviation traffic in Shanghai and Shenzhen also fell, even though Lunar New Year holidays should have increased it, according to RBC Capital Markets. Profits from producing jet fuel in Asia fell to the lowest in nearly four years.
“Given the uncertainty over containment, duration and economic impact of the coronavirus outbreak in China, the oil market has understandably been focusing on the negative effect the virus will have on oil demand, notably in jet fuel,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.
West Texas Intermediate for March delivery rose 10 cents to $53.24 a barrel on the New York Mercantile Exchange as of 7:20 a.m. local time Jan. 28. It closed at $53.14 on Jan. 27, the lowest since Oct. 15. The grade has lost 13% so far in January, set for the biggest monthly decline since May.
Brent for March settlement declined 7 cents to $59.25 a barrel on the London-based ICE Futures Europe exchange after falling 2.3% on Jan. 27.
Saudi Arabia, the world’s biggest oil exporter, attempted to reassure markets this week by saying it saw “very limited impact” on demand from the virus. The kingdom said OPEC and its allies are prepared to take action to stave off any supply imbalances. Yet as the Organization of Petroleum Exporting Countries is already implementing steep production cuts, it’s unclear how much more the cartel is willing to do to defend prices.
With traders focused on demand, oil markets have largely ignored a political crisis in Libya that has choked off the OPEC nation’s exports. Eastern-based general Khalifa Haftar blockaded the country’s ports earlier this month while haggling over a peace settlement with the national government.
Production has slumped almost 80% since the blockade began about 10 days ago, to 262,000 barrels a day. It could dwindle to just 72,000 a day within days, National Oil Corp. Chairman Mustafa Sanalla said in a Bloomberg television interview.
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