February 28, 2020 11:45 AM, EST

Oil Plummets in Worst Week Since 2008 Amid Coronavirus Panic

Persian Gulf oil platform Gas flares burn from pipes aboard an offshore oil platform in the Salman Oil Field near Lavan island, Iran. (Ali Mohammadi/Bloomberg)

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Oil had its worst week since the financial crisis as panic over the coronavirus pandemic battered global markets.

Futures in New York fell 16% this week, marking the biggest weekly drop since December 2008. The viral outbreak showed no signs of relenting, with the World Health Organization raising global risk to “very high” from “high.” The collapse of financial markets prompted U.S. Federal Reserve Chairman Jerome Powell to assure investors that the central bank is prepared to cut interest rates to mitigate the virus’ threat to economic activity.

“A month ago, the concern was only China,” said Pavel Molchanov, energy research analyst at Raymond James & Associates Inc. “This meltdown is a fear of a global pandemic. The risk is we will see the same disruptions we saw in Asia, from travel restrictions to quarantines, materialize all over the world.”

Oil prices have tumbled almost 27% this year on concerns the coronavirus outbreak will dent crude demand. OPEC and its allies have signaled the coalition could reach an agreement to stem the rout before meeting in Vienna next week. Saudi Arabia is reportedly pushing for collective OPEC+ production cuts of an additional 1 million barrels a day, of which it would bear the brunt.

However, Riyadh’s proposal may not be enough to balance the oil market, according to a coronavirus-scenario analysis by Bloomberg Intelligence analysts Salih Yilmaz and Rob Barnett. The alliance’s overall compliance with production cuts has not been enough to support oil prices. The reemergence of Libyan barrels also remains a risk.

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“We may be too far deep for any OPEC cuts to have a meaningful impact,” said Peter McGinn, market strategist at RJ O’Brien & Associates LLC. “If the virus keeps spreading, that is just going to keep hurting demand and cause another wave of panic selling. A production cut could give it a bounce, but these lows will persist for the foreseeable future without a vaccine.”

West Texas Intermediate futures for April delivery fell $2.33, or 5%, to settle at $44.76 a barrel on the New York Mercantile Exchange.

Brent for April settlement, which expired Feb. 28, lost $1.66, or 3.2%, to end the session at $50.52 a barrel on the ICE Futures Europe exchange. The more active May contract fell 4% to $49.67.

Brent’s so-called red spread — the difference between December contracts in consecutive years — sank deeper into bearish contango, settling at its lowest level since 2018.

With assistance from James Thornhill, Alex Longley and Ann Koh.

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