Oil markets gave up the gains they made due to the increasing optimism caused by the signing of phase 1 of the trade deal between the United States and China, which would put an end to the long trade feud that destabilized the global markets last year. However, the recent Coronavirus outbreak brought back the fears in the market, especially concerning the oil demand levels which investors expect to fall.
“Investor fears on oil demand have risen considerably, driven by unfavorable U.S. inventories and ... concerns on impact from the coronavirus outbreak” said a Goldman Sachs analyst.
The Saudi Energy Minister said recently that this situation in the markets is “primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand.”
He added that such a situation already happened in the markets during the SARS outbreak in 2003, which first appeared on southern China and resulted in more than 8000 cases.
“Such extreme pessimism occurred back in 2003 during the SARS outbreak though it did not cause a significant reduction in oil demand,” he added, saying that the OPEC members are in any case ready to respond to any developments in order to maintain the markets stable.
The virus outbreak is expected to affect significantly the Chinese economy and its proxies (like New Zealand and Australia) since it has spread fear, making Chinese consumers and tourists avoid certain public places, hitting mainly the Chinese services sector. In order to manage the crisis, the Chinese Government is currently putting entire cities into quarantine.
By 9:42 GMT the Western Texas Intermediate Crude Oil Futures were down by 3.32 percent, losing 1.80$ and falling to the 52.39 level. Conversely, Brent Oil futures were down by 3.31 percent, losing 1.98$ and falling to the 57.91 level.