By Peter Nurse
Investing.com - Oil prices fell sharply to a two-month low Thursday, extending recent weakness amid concerns the pneumonia-like virus in China could have a significant impact on the world’s largest importer's demand for crude.
By 9:30 AM ET (1430 GMT), U.S. crude futures were down 2.9% at $55.08 a barrel, having earlier hit an intraday low of $55.01, its lowest since early November. Brent futures were down 2.6% at $61.59 a barrel, just off its intraday low of $61.44, its lowest since early December.
Earlier Thursday, China authorities issued a travel suspension in two cities - Wuhan, a city of 11 million at the center of the outbreak of the coronavirus, and neighboring Huanggang, 7.5 million people strong. These were the latest attempts to stop the spread of the deadly disease.
“Downside demand risks due to the Wuhan virus appear to be a growing concern for the market, and understandably so, with any clampdown on travel likely to weigh on fuel demand, said analysts Warren Patterson and Wenyu Yao at ING in a research note.
Adding to the negative news came from Wednesday’s weekly oil inventories data from the American Petroleum Institute which showed a hefty 1.6 million barrel increase in U.S. crude oil stocks. This followed on from an increase of 1.1 million barrels last week, and point to a budding oversupply in the domestic market.
“The more widely followed EIA report will be released later today, and numbers similar to the API would likely put some downward pressure on refinery margins, which have been in doldrums for quite some time now,” said the ING analysts.
The official government data are due at 10:30 AM ET (1530 GMT).
That said, ING suggested oil bears should be cautious.
“While markets are obsessing over virus developments, they seem to be ignoring a number of oil supply risks in the market, which in aggregate would far outweigh the demand impact from the Wuhan virus,” they added.
Pointing to varying problems in Libya, Iraq, Kazakhstan and Nigeria, “these disruptions add up to somewhere in the region of 1.4MMbbls/d, which would be more than enough to shift the global market into deficit over 1H20,” said ING.