What’s happening: Crude oil dipped 3% to its lowest level in two weeks, as the coronavirus spread beyond the borders of China. Fears were further fanned by WHO saying it is not clear how the virus is spreading.
What happened: US WTI (West Texas Intermediate) crude oil nosedived to a two-week low, settling below $50 per barrel on Tuesday. Fears of a global slowdown sent prices lower for a third consecutive session. Crude oil prices had shed almost 16% through January.
Why oil prices are falling: There is a rise in new cases of coronavirus from other corners of the world, forcing investors to flee from assets perceived as risky towards traditional safe-haven assets, like gold and US Treasury Bills.
The virus, which emerged in Wuhan, China, is now spreading to Europe, the Middle East and other parts of the world, fueling widespread fears of a possible disruption in the supply chain and a severe hit to global economic growth.
WTI crude for April delivery tumbled 3% to end at $49.90 per barrel, its lowest since February 10. April Brent crude fell 2.4% to settle at $54.95 per barrel, the lowest finish since February 11.
Why it matters: At least 80,000 persons worldwide have been diagnosed with COVID-19, the official name for the deadly coronavirus. Although China has reported a decline in the daily number of new cases and has lowered the emergency response level in three more regions, reports of infections from other countries are on the rise.
South Korea reported 169 new cases this morning, taking the total to at least 1,146 with 11 confirmed deaths from the virus. China’s National Health Commission had confirmed 52 more deaths by the end of Tuesday, taking the toll to 2,715 since the outbreak began. China also reported 406 new confirmed cases, which takes the total to 78,064 cases.
Austria has halted trains to Italy. Saudi Arabia, Kuwait, Iraq, Turkey and Afghanistan have imposed travel restrictions on Iran, after it reported 43 cases of the virus.
Meanwhile, a spokesperson for the World Health Organization said that infections were emerging in people who had neither traveled to China nor had any contact with confirmed cases. Margaret Harris added that it is “not clear how the virus is spreading” and that there are cases “that don't have a clear epidemiological link.”
The OPEC+ (Organization of the Petroleum Exporting Countries and its allies) is meeting next week to consider the next steps to decide on production levels in a bid to contain the decline in oil prices. However, rising tensions between Saudi Arabia and Russia have caused uncertainty around the OPEC’s ability to make the production cuts actually happen.
The American Petroleum Institute reported a gain of 74,000 barrels of gasoline for the week ending February 21, after a decline of 2.67 million barrels last week. Distillate inventories declined 706,000 barrels for the week, while cushing inventories climbed by 411,000 barrels.
What to watch: The US EIA (Energy Information Administration) is scheduled to release its weekly petroleum supply report today. Any unexpected rise in supply will exert further pressure on oil prices. Announcements by the OPEC to lower output may support oil prices.