By Barani Krishnan
Investing.com - Oil prices had their worst one-day plunge since the coronavirus contagion began, ending almost 4% down Monday, as investors fled from risk across markets and into safe havens as greater numbers of people in countries outside China fell prey to the outbreak.
Brent, the London-traded global benchmark for crude, settled down $2.17, or 3.7%, at $55.77 per barrel.
West Texas Intermediate, the U.S. crude benchmark, also fell 3.7%, or $1.95, to settle at $51.43 per barrel.
It was oil’s biggest selloff since Jan.8, when the virus was just gaining global prominence. On that occasion, Brent fell 6.5% and WTI 5.7%.
Just on Thursday, the global benchmark rose to a three-week high of $59.99, capping a two-week comeback by oil bulls, while its U.S. peer hit a one-month high at $54.63.
Oil tumbled as a spike in coronavirus infections in Italy, South Korea and Iran triggered risk aversion across markets, driving investors out of energy and equity markets toward safe havens like gold and the dollar.
South Korea had its seventh death from the virus on Monday, while its fourth-largest city, Daegu, was increasingly isolated as infections rose rapidly, Reuters reported.
Italy reported its fifth death and rise in infections to 150, while Iran confirmed 61 cases and 12 deaths. Afghanistan, Iraq, Kuwait, Saudi Arabia and Turkey all imposed travel and immigration curbs on Iran as well.
FG Energy said in a tweet that global oil demand growth was now expected to be zero in 2020 as crude consumption suffers from a potential slowing in business and activity across the world.
That comes on top of a recent forecast by the International Energy Agency that demand for oil will be 435,000 barrels less per day in the first quarter of this year versus the opening quarter of 2019.
The Paris-based IEA also cuts its growth projection for 2020 to 825,000 barrels per day, a reduction of nearly a third from its previous target, and the lowest growth forecast since 2011. It was the most bearish post-financial crisis forecast for oil by the EIA after crude prices managed to claw back to north of $100 a barrel in 2011, before falling back in recent years.
“For oil the fear is we will see more demand destruction and turn a very tight global oil market into an oversupplied market,” said Phil Flynn, analyst at Chicago brokerage Price Futures Group.
“The oil market is pricing in the risk of a global slowdown as the virus spreads," Flynn added. "We can give historical contexts to these types of events and in the big picture demand shocks, oil should be bought, not sold. Yet try telling the market that.”