Oil Futures Drop on Coronavirus Fears

WASHINGTON (DTN) -- Oil futures on New York Mercantile Exchange and Brent crude on the Intercontinental Exchange settled sharply lower on Monday along with sliding global equity markets, as investors continued to flee risky assets on deepening fears over the scope of China's virus outbreak.

The dollar appreciated throughout the volatile session to end at a 2 1/2-month high of 97.767 against a basket of foreign currencies in index trading, with investors rushing into safe-haven assets, including U.S. Treasuries, gold and the greenback.

Fear over slowing economic growth due to the spreading virus sent the Dow Jones Industrial Average down more than 400 points late afternoon and S&P 500 tumbled 1.4%. European shares registered the worst drop in nearly four months, with accelerated declines in the German stock market. Many Asian markets remained closed Monday due to the Lunar New Year celebration that has now been extended through Feb. 2 to contain the spread of infection.

In the market-on-close trade, NYMEX March West Texas Intermediate futures tumbled $1.05 to a 3 1/2-month spot low $53.14 per barrel (bbl) settlement, with ICE March Brent futures shedding $1.37 to end the session at $59.32 per bbl. NYMEX February RBOB futures dropped 3.12 cents to $1.4840 gallon, the lowest spot settlement in five months, and the front-month ULSD contract declined 5.45 cents to $1.6795 gallon, better-than-one-year low on the spot continuous chart.

Equities and oil futures traded deep in the red Monday, as markets begin to contemplate the possibility that China's virus 2019-nCov (coronavirus) will have significant impact on global economic growth.

Chinese Health Commission announced Monday the coronavirus' transmission ability is getting stronger and infections will likely continue to rise in the coming weeks.

According to the latest estimates, virus-related deaths climbed to 83 people, with the first case reported in Beijing on Monday. A travel ban is currently extended to 85 million people across central China and the number of infected people exceeded 3,000 to start the new trade week.

China's President Xi Jinping warned that the spread of the coronavirus presents a "grave situation," while ordering all levels of government to "put people's life and health as top priority," according to the state-run outlet Xinhua News Agency. The mayor of Wuhan offered to resign on Monday, with Wuhan the epicenter of the mysterious virus.

Many U.S. companies tied to China have suspended operations in the country, including Starbucks, McDonald's and Disney. Starbucks announced Monday it would close all shops and suspend deliveries in Hubei province until the health situation improves.

China's large businesses will also remain closed through the beginning of February after Beijing extended weeklong Lunar New Year holidays. With the country remaining the largest contributor to global economic and fuel demand growth, traders expect crude consumption in the first quarter to take a heavy blow as a result.

The market's next move might be determined by this week's announcement from World Health Administration officials. The agency's chief is currently in Beijing to assess the situation.

Separately, traders will also pay attention to the Federal Open Market Committee meeting Tuesday-Wednesday. According to CME Group's FedWatch tool, markets currently price in 87% probability the central bank will leave rates unchanged between 1.5% and 1.75%. Still, some in the market have speculated that should the coronavirus intensify and send stock market lower the Fed might reconsider their stance and cut rates.

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

(CZ)

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