(Bloomberg) — Oil is heading for the longest run of weekly losses since May on fears China’s coronavirus outbreak may dent demand amid plentiful global supplies, even as U.S. crude inventories unexpectedly declined.
Futures in New York are down 4.9% this week as officials widened their travel ban beyond the epicenter of the outbreak. S&P Global Ratings warned that the virus could hit Chinese consumption following a prediction from Goldman Sachs Group Inc. earlier in the week that oil demand may drop. Broader market sentiment was mixed, with mainland China shut for Lunar New Year holidays.
The fast-spreading virus is the latest challenge for a market that’s been buffeted this year by geopolitical turmoil in the Middle East and North Africa, as well as the phase-one trade deal between Beijing and Washington. While the International Energy Agency says the world is “awash with oil,” a surprise 405,000-barrel decrease in U.S. crude stockpiles offered some relief.
“The coronavirus has clearly taken many of the more fundamental issues off the market and is clearly impacting sentiment,” said Daniel Hynes, senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Sydney. “Issues that could negatively impact demand seem to have a greater sort of sensitivity.”
West Texas Intermediate futures for March delivery added 7 cents to $55.66 a barrel on the New York Mercantile Exchange as of 11:42 a.m. in Singapore. Prices are poised for a third weekly drop after closing at the lowest level since Nov. 29 on Thursday. Brent crude rose 7 cents to $62.11, and was also set for a third weekly decline.
See also: China’s Economy Was Brightening This Month Before Virus Fear Hit
China widened restrictions imposed on travel and public gatherings to several municipalities around Wuhan, the city where the virus was first detected. More deaths were reported from the SARS-like disease, even as the World Health Organization stopped short of calling the infection a global health emergency.
If spending on things including discretionary transport and entertainment dropped by 10%, China’s overall GDP growth would fall by about 1.2 percentage points, according to “back of the envelope” estimates from S&P. Goldman said the virus may crimp global demand by 260,000 barrels a day this year, specifically jet fuel, if the SARS epidemic in 2003 is any guide.
–With assistance from James Thornhill.
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