By Barani Krishnan
Investing.com – The coronavirus is spooking every market everywhere and OPEC’s attempts to save oil prices from further collapse over the outbreak might be stymied by its best ally, Russia.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, was down $1.42, or 2.7%, at $51.91 per barrel by 12:57 PM ET (17:57 GMT) as Bloomberg reported that Saudi Arabia’s push to convene an emergency OPEC+ meeting in February, – ahead of a scheduled March gathering – is facing resistance from Moscow, Riyadh’s biggest partner in the alliance.
Brent, the London-traded global benchmark for crude oil, sunk $1.86, or 3.2%, to $57.05, reacting to the uncertainty over the OPEC+ emergency meeting that oil producers from the Middle East to Africa to Southeast Asia hope to use to stall a further slide in crude prices from the coronavirus-driven market meltdown.
The virus has killed more than 170 people and infected more than 8,000 in China and spread to at least 18 other countries. For oil particularly, say analysts, the impact could be disastrous for as long as it lasts, as China is the world’s No. 1 energy consumer and road, rail and air transportation has virtually come to a standstill in infected parts of the country.
International airlines from Air France to Air Canada and American Airlines (NASDAQ:AAL) were among those that have suspended flights to China, raising further questions about jet fuel demand. Leading carmakers such as Toyota Motor (NYSE:TM) and BMW (MI:BMW) have also temporarily halted their Chinese production.
Sanford C. Bernstein trimmed its gasoline demand forecast by 50,000 barrels a day and cut its diesel consumption estimate by 40,000 barrels a day
Oil could fall to around $50 a barrel without OPEC intervention, it added.
S&P Global Platts, in a worst-case scenario, says global oil demand will drop by a “massive and almost catastrophic” 2.6 million barrels a day in February and 2 million in March. For jet fuel, this could mean a 1-million-barrel-a-day demand drop next month, it added.
Morgan Stanley (NYSE:MS) says if the coronavirus continues to escalate for three to four months, it would cut around 75,000 barrels a day from China’s 2020 oil demand growth. If the virus peaks in one to two months, first quarter demand growth would fall to 150,000 barrels a day from 310,000, it said.
Flight cancellations could cause the loss of 400,000 to 700,000 barrels a day of jet fuel demand in the first quarter, while diesel demand weakness could lead to refinery run cuts, Morgan Stanley said.
“Coronavirus fears overshadow good news on the energy front,” said Phil Flynn, analyst at Chicago’s Price Futures Group.
“For the first time in 2020, the U.S. is a net energy exporter. Yet a surprise build in crude stocks added to the bearish mood,” Flynn added, referring to Wednesday’s weekly oil supply-demand summary from the Energy Information Administration that showed a surprise crude stockpile build of 3.5 million barrels.
With just one session left to close January, WTI is down 15% for the month, heading for its worst monthly loss since May.
Brent is down almost 14% for January, on track to its worst month since November 2018.
“From what the consultants say, they are significantly short products and WTI and can sell a lot more Brent,” said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C.
“My thoughts are that while the models show a large short, they probably have not gotten short enough just yet and perhaps this selloff in Brent and products will get them to where they are supposed to be, which is max short.”