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Oil futures fell sharply Monday, dropping 4% as the spread of COVID-19 outside China underlines worries about a potential hit to crude demand.
“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 Price Futures Group, in a note.
West Texas Intermediate crude for April delivery CLJ20, -4.22%, the U.S. benchmark, fell $2.14, or 4%, to $51.24 a barrel on the New York Mercantile Exchange. May Brent crude BRNJ20, -4.31%, the global benchmark, was off $2.20, or 3.8%, at $55.74 a barrel.
The drop for oil accompanied a selloff in global equities and other assets perceived as risky, triggered by a rise in the number of COVID-19 cases outside of China. The spread of disease caused by a coronavirus that emerged near Wuhan, China, late last year has sparked fears of a hit to supply chains and global economic activity. Dow futures were down more than 800 points, or 2.8%, indicating steep losses for U.S. stocks when trading opens Monday.
“While Chinese authorities have reported increasing activity across many key industries, we now may have to turn our attention more and more to the rest of the world and start formulating some new demand ideas there as well,” wrote analysts at JBC Energy, a Vienna-based consulting firm, in a Monday note.
See: South Korea goes on high alert over virus, Italy battles to contain outbreak
Some analysts argued that a knee-jerk reaction to headlines surrounding the viral outbreak was overdone.
“The oil market is pricing in the risk of a global slowdown as the virus spreads. We can give historical contexts to these types of events and, in the big picture, demand shocks should be bought not sold, yet try telling the market that,” Flynn said.
In other energy trading, March gasoline RBH20, -4.23% fell 3.7% to $1.6962 a gallon, while March heating oil HOH20, -4.62% was off 4% at $1.863 a gallon.
March natural-gas futures NGH20, -2.20% declined 2.6% to $1.863 per million British thermal units.
