U.S. markets opened on Monday down a substantial amount, with major indexes such as the S&P 500, the Dow Jones, and the NASDAQ all giving up over 1.5% of their value in a single day. While that might not seem like much, it marks the biggest single-day shift in over three months. While most U.S. stocks ended the day down a little, besides the usual biotech stocks that have shot up in light of the ongoing coronavirus fears, another market that suffered was the global energy market.
In particular, oil prices took a significant hit on Monday, with international standard Brent crude falling by 3 percent to just $58.89 per barrel, while West Texas Intermediate ended the day just down 1.9%. Over the past week, prices for Brent have fallen by a massive $7 per barrel, a loss that’s entirely attributed to the outbreak of the coronavirus.
Edward Marshall, a commodities trader at Global Risk Management, went on to say that drops in oil prices are “100% down to the coronavirus. I think we’re close to peak hysteria, so yes the move is justified. We’re in full panic mode.” Many analysts have warned that this epidemic could have a bigger impact on the markets than the previous SARS virus outbreak of 2002. ” “Using SARS as a template underestimates the growth of the middle class in China with more flights being canceled each day. This could have a large and longer-lasting effect,” he added.
With over 80 people having died due to the outbreak and a further 2,700 infected in China, many are worried that the figure could easily balloon into the tens of thousands or even hundreds of thousands. The Chinese government has already locked down the main area where the coronavirus outbreak first occurred, although many people are already infected and are just now beginning to report their symptoms/get diagnosed with the coronavirus.
The timing also couldn’t be worse. With millions of Chinese citizens that otherwise would have traveling for their New Year Holiday, travel companies such as airlines will have little business in the area. As such, oil consumption is expected to be lower, which could lead to an oversupply in the country for a time. This will, in turn, have a significant impact on global oil prices, further pushing them down with only the potential of further supply cuts from the Saudi’s possibly offsetting the decline.
In response to these fears, Saudia Arabia’s energy minister has gone on to say that there is “very little impact” on global energy demand due to the coronavirus and that the previous SARS outbreak ended up having little permanent effect on oil prices for the long term. He also went on to say that OPEC and its allies were flexible in regards to their output and would be willing to cut production even further in order to stabilize the market. OPEC has previously started that $50 per barrel is a minimum price target that they want oil to stay. However, an increasing supply of domestic, American oil has been making that difficult for the group of countries.
