Crude oil prices posted the worst weekly decline in more than a year on concern that the spread of China’s coronavirus will cripple fuel demand. Prices of Brent futures sank 2.2 percent in London on Friday.
The Asian virus has spooked traders even as the WHO stopped short of declaring a global health emergency. The contagion is disrupting travel during the Lunar New Year holiday, when hundreds of millions normally fly or ride home. The selloff has accelerated as trend-following funds turned bearish, according to TD Securities.
“Contagion fears are spiking ahead of the biggest yearly migration ahead of new year,” said Daniel Ghali, a commodities strategist at TD Securities. “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.”
The fast-spreading virus is the latest challenge for a market that has been buffeted this year by geopolitical turmoil in the Middle East and North Africa, as well as the phase-one trade deal between Beijing and Washington. Goldman Sachs Group Inc said earlier this week that if the coronavirus has an impact similar to the 2003 SARS epidemic, demand could be curbed by 260,000 barrels a day. While this is not the first time global oil markets contend with an epidemic threatening demand, the current supply environment could worsen the situation.
“The slightest fear of any economic slowdown will spur a long wave of liquidations because the market is so oversupplied,” ICAP Technical Analysis chief technical strategist Walter Zimmermann said.
Some businesses in China including McDonald’s Corp and Starbucks Corp temporarily shut some stores in efforts to contain the virus.
Brent crude for March settlement fell US$1.35 to settle at US$60.69 a barrel on the ICE Futures Europe exchange in New York putting its premium over West Texas Intermediate (WTI) futures for the same month at US$6.50 a barrel. Brent futures fell 6.4 percent this week.
WTI futures for March delivery slipped US$1.40 to end the session at US$54.19 a barrel on the New York Mercantile Exchange, the lowest level since October. Meanwhile, based on the commodity’s relative strength index, WTI is sitting in oversold territory and is due for a rally.
Commodity markets experienced mixed fortunes as traders digested the news of deadly disease in China. Copper saw its worst streak of losses since mid-2018 as more patients were infected by the deadly coronavirus in the US, spurring a sell-off in riskier assets while boosting gold’s haven appeal.
China, the world’s largest consumer of commodities including industrial metals, locked down Wuhan and its surrounding areas to contain the coronavirus, the first large-scale quarantine in modern times.
“If you all of a sudden take China off the board because you’re looking at shutting down mills and shutting down transportation to the mills, it’s going to hurt,” Peter Thomas, a senior vice president at Chicago-based broker Zaner Group, said by telephone.
Copper, often a barometer of global growth, fell 1.5 percent to settle at US$2.684 a pound at 1:02pm on the Comex in New York. March futures are down 6.6 percent since mid-January, the biggest seven-session loss for a most-active contract since July 11, 2018.
“We suspect that even more demand destruction fear is justified because the virus will also undermine Chinese sentiment and dampen the biggest shopping period of the Chinese calendar,” Blue Line Futures chief market strategist Phil Streible said on an e-mailed note.
The Bloomberg Industrial Metals Subindex Total Return, which tracks copper, aluminum, zinc and nickel, slipped 1.3 percent, poised for the steepest four-day decline since September 2018. The wider commodities gauge is set for the biggest weekly loss since December 2018.
The outbreak has also boosted bullion’s appeal as haven. Over the past five days, investors poured more than US$1 billion into SPDR Gold Shares, the largest exchange-traded fund backed by the metal.
On the Comex in New York, gold futures for April delivery rose, posting five straight weekly gains.
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