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Oil futures tumbled to the lowest level in about eight weeks on Thursday, amid increasing fears Asian economic growth and oil demand may be hit by the spread of the coronavirus outbreak in China, where authorities have been forced to lock down a city of more than 11 million people.
Oversupply concerns, despite a disruption to Libyan oil production, have been additional worries for the investors of the commodity.
West Texas Intermediate crude for March delivery CLH20, -3.24% fell $1.69, or 3%, to $55.05 a barrel, the lowest level since November. The contract slid 2.8% to settle at $56.74 a barrel on the New York Mercantile Exchange on Wednesday, the lowest settlement for a front-month contract since Dec. 3, according to Dow Jones Market Data.
March Brent crude BRNH20, -2.96% lost $1.54, or 2.4%, to $61.67 a barrel. On Wednesday, the contract finished down 2.1% to $63.21 a barrel on ICE Futures Europe, the lowest since December 4.
China has banned travel in and out of Wuhan, where the first cases of the coronavirus outbreak appeared last month. Singapore confirmed its first case of the virus on Thursday.
To date 17 people have died and more than 500 have been infected. Financial markets have been rattled by developments, with China stocks tumbling Thursday as the virus is colliding with the massive Lunar New Year holiday.
“China remains the most significant driver of year-over-year oil demand growth,” and oil markets are hypersensitive to all things that could potentially impact consumers in that country, Stephen Innes chief market strategist at AxiCorp, told clients in a note.
Given the importance of China to oil demand, “and having the outbreak falling on the cusp of peak domestic travel season, the “timing is particularly damaging for oil prices,” he said.
Weekly data on U.S. petroleum supplies from the Energy Information Administration will be released at 11 a.m. Eastern time, a day later than usual because of Monday’s Martin Luther King Jr. holiday. Late Wednesday, the American Petroleum Institute reported a rise of 1.6 million barrels in U.S. crude stockpiles for the week ended Jan. 17, according to sources.
On average, the EIA is expected to report a weekly climb of 500,000 barrels in U.S. crude supplies, according to a poll of analysts conducted by S&P Global Platts. The survey also showed expectations for weekly inventory increases of 3.3 million barrels for gasoline and 1.6 million barrels for distillates.
On Nymex ahead of the supply data, February gasoline RBG20, -2.41% fell by 2.3% to $1.5435 a gallon and February heating oil HOG20, -2.58% lost 2.5% to $1.7545 a gallon.
February natural gas NGG20, +2.99% traded at $1.959 per million British thermal units, up 2.9%. Prices got a boost “from short-term cold weather and snow” in parts of the U.S., but this “may be short-lived with weather modules pointing to a warmer than average February, said Dan Flynn, trader and analyst at The Price Futures Group, in a market update.
Meanwhile, analysts expect the EIA’s Thursday report on natural gas, due at 10:30 a.m. Eastern time, to show a weekly decline of 88 billion cubic feet in natural-gas stockpiles, which would be much less than the year-ago and five-year average weekly decline, according to S&P Global Platts.
