On Monday, Brent crude price dipped to $58.99, according to CNBC. West Texas Intermediate crude also fell, trading at $52.70. This downward price pressure in the midst of a global oil glut has brought prices to their lowest points since October 2019. Industry analysts point to coronavirus concerns as a factor that may prove to weaken demand, perhaps even pushing prices lower. Travel restrictions, an extended Lunar New Year holiday season and factory closures are just a few of the ways that coronavirus fears can impact oil demand and prices.
Goldman Sachs Commodity Strategist Predicts Further Price Decreases
“Ultimately we expect jet fuel markets — including cracks, regrade and Asian differentials — to decline most if this outbreak persists given the likely decline in regional air travel,” said Goldman Sachs senior commodity strategist Damien Courvalin, as quoted by Offshore Technology. Courvalin also said oil demand could decrease by 260,000 barrels per day in response to this new coronavirus. With tens of millions of people impacted by travel restrictions, it is possible that demand could be impacted significantly, especially if the situation continues to worsen.
China has instituted widespread quarantines and travel restrictions, including forbidding private autos in the central region of Wuhan. These restrictions impact well over 35 million people during what is China’s busiest travel season. Air and train travel in China is 41 percent lower than it was last year at this time. Wuhan is an important industrial center, with nine automobile manufacturing factories. Some of these international car makers are instituting their own employee travel bans. Millions of workers will not be returning to work in Suzhou for another week. Shanghai factories won’t be opening until February 10.
OPEC May Cut Production
Saudi Energy Minister Prince Abdulaziz bin Salman said that “psychological factors” are pushing prices down more than true market factors, according to an Argus Media report. Prince Abdulaziz expressed concern about the oil market over-reacting to the potential for the coronavirus to disrupt oil demand in China. He also said that he was confident in China’s ability to bring the situation under control. However, Prince Abdulaziz did indicate an OPEC willingness to take market stabilizing action if conditions require it. OPEC has already been discussing additional production cuts because oil prices have low enough to threaten Saudi Arabia’s ability to balance this year’s national budget.
OPEC Will Meet as Scheduled
Despite the marked downturn in the oil market, OPEC doesn’t think current market conditions warrant any emergency action. The next scheduled OPEC meeting will take place in Vienna, in the beginning of March. While there is some speculation that OPEC may decide to just extend the current reduction in oil production through the end of 2020, Prince Abdulaziz hasn’t ruled out more aggressive cuts. He said that all options are on the table for discussion at the next meeting and that OPEC does have the flexibility required to do what is necessary to keep the oil market stable.