Oil prices dropped further on Thursday falling almost 15% in three weeks. This has been propelled by the ongoing concern and consequences of the coronavirus outbreak in China. The expanded travel restrictions in China have further lessened the demand for oil in the world’s most populous country. The Chinese Football league has put an indefinite postponement to all fixtures and a number of airelines have reduced or suspended flights to the region. Authorities have now confirmed over 8,000 cases with over 200 fatalities and the World Health Organisation has declared a global health emergency.
Market prediction models are being put together in the event of the worst case scenario, should the outbreak spread to become a global epidemic and economists predict that China’s GDP could fall by up to 1% due to the virus. If air passenger traffic drops by half in the first quarter of 2020, it would result in a 300,000 barrel a day decline in jet fuel demand alone.
OPEC (the Organisation of Petroleum Exporting Cointries) was due to meet in March, but is now looking to bring their assembly forward to February in order to tackle the decline in oil demand and prices. Oil markets are familiar with dealing with supply disruptions and political volatility within oil producing countries; the supply disruptions currently affecting Libya as an example. However it’s rare for the markets to suffer prolonged demand issues due to a virus outbreak. A comparable situation can be made with the SARS Virus outbreak in 2003 which killed over 700 people worldwide, half of which were from China.
The outbreak is less than a month old and the rate of people infected is accelerating daily. The humanitarian concern is of course the first and foremost concern as the world’s markets react in tandem.
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