Oil Futures Drop as Virus Fears Grow

WASHINGTON (DTN) -- Oil futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange deepened losses on Friday. The U.S. crude benchmark dropped back to a three-month low amid growing evidence that a deadly viral outbreak in China that has sickened more than 900 people and restricted travel for over 35 million could turn into a SARS-like global pandemic.

NYMEX March West Texas Intermediate futures tumbled $1.40 to a $54.19 per barrel (bbl) settlement, with ICE March Brent futures shedding $1.35 to an eight-week spot low of $60.69 per bbl settlement. NYMEX February RBOB futures dropped 4.50 cents to $1.5152 per gallon, the lowest spot settlement in 3 1/2 months, and the front-month ULSD contract plunged 5.76 cents to $1.7340 per gallon, paring a decline to a $1.7203 near-one-year low on the spot continuous chart.

Oil futures declines accelerated Friday after Centers for Disease Control and Prevention confirmed the second U.S. case of a Wuhan coronavirus. The new viral illness is now believed to be more contagious than originally thought, with estimates that each infected person is passing the virus onto 2.5 people, placing it in the same league as SARS.

On Friday, Chinese authorities expanded the travel ban in effect to 12 cities, restricting mobility of over 35 million people -- roughly the size of Canada's population. The virus is already eating into China's economic growth and energy demand as authorities suspended all travel in and out, locked down cities and cancelled celebrations leading up to Lunar New Year.

Goldman Sachs said this week if a new virus reaches SARS-like scale the oil market could see a drop of 260,000 barrels per day (bpd) in the global oil demand, 170,000 bpd of which would be in the form of jet fuel.

Weighed down by risk-off sentiment, U.S. equities nosedived on Friday, with Dow Jones Industrial plunging 170 points to 28.989 and S&P 500 falling down 0.6%.

Traders seemed to shrug off Friday's release of economic data from the United States and Eurozone, detailing a better-than-expected output in manufacturing and services sectors this month. According to preliminary reading, U.S. PMI score beat expectations with 53.1, although most of that growth came from service sectors. In Eurozone, PMI composite came at 50.9 reading, with sizable gains from industries -- up 2.1 percentage points from the prior month to 47.8. Notably, Germany surprised the markets with a 45.2 reading, marking a significant improvement from the prior month. The services index also exceeded estimates with a 54.2 reading. The new data suggests more balanced growth across the Eurozone economies, raising hopes that massive stimulus introduced by the European Central Bank late last year will boost investments.

These statistics were released a day after ECB called for caution on the recent green shoots in the Eurozone economy. ECB's president, Christine Lagarde, announced the launch of strategic review in 2020 and kept the key interest rates unchanged at historic lows.

Liubov George can be reached at luibov.georges@dtn.com

(CZ)

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