Oil prices tumbled due to coronavirus on emotional reactions

Oil&Gas Materials 29 January 2020 17:50 (UTC +04:00)
Oil prices tumbled due to coronavirus on emotional reactions

BAKU, Azerbaijan, Jan. 29

By Leman Zeynalova – Trend:

The immediate effects of coronavirus on the oil market are clear, as oil prices have tumbled, mainly at present on the emotional reactions in the market, Cyril Widdershoven, a Middle East geopolitical specialist and energy analyst, a partner at Dutch risk consultancy VEROCY and Global Head Strategy Risk at Berry Commodities told Trend.

“The effects of lower international air traffic (planes) and possible lower demand for fuels in China are there, but should not be overestimated. Looking at the total demand effects of the SARS virus crisis, you can see a lower demand during this issue of around 260,000 – 300,000 bpd. Taking into account that this should be put against a global oil demand of more 90 million bpd, the effects could be minimal,” said the expert.

Widdershoven believes that the ultimate issue in this however is that it could have some negative ripple effects on the global economy on the short term.

“Possible lower air travel, combined with less business between China and the rest of world, the effects could be higher, but still not dramatic or even significant enough to become a major demand spoiler. Where there is however an issue is if the virus really will spread around the world, causing havoc. At present no indications are yet there to have this in mind, as the overall casualty toll of the virus is relatively low, while mostly concentrated in one specific area of China,” he said.

The expert noted that looking at former virus crisis, such as SARS, the total effects were minimal, just visible during the peak of the crisis.

“On the long term, activities worldwide again picked up, with even a recovery effect, leading to higher oil demand after the crisis than the levels before the crisis. What we see at present is an emotional reaction to a virus, as analysts are worried not only about the direct effects on humans, but also that it will have a negative impact on their ongoing assessments of the US-China trade balance, trade war and possible lower growth of the Chinese economy,” he said.

Widdershoven noted that without any doubt demand on short term will be lower, but also this is linked to global situation in which during winter season demand for crude oil etc. is lower.

“No real crisis scenarios should yet be put in place, not even lower OPEC production and export volumes. Trade blockades or blocking air traffic will have an impact, but could be even reversed to the positive after the crisis. As long as it is not a global crisis, global demand for oil will not be hit hard. Prices can be very volatile, but at present the latter is not at all linked to supply-demand, but to predictions of financial analysts and possible global warming issue threats. History has taught us that demand and supply are stronger than a virus,” he concluded.

The outbreak in the Chinese city of Wuhan - which is an international transport hub - began at a fish market in late December of 2019 and since then more than 130 people have died, including a doctor who was treating the victims. Some sources claim the coronavirus outbreak started as early as November 2019.

The symptoms include cough, headache, fatigue, fever, aching and difficulty breathing. It is primarily spread through airborne contact or contact with contaminated objects.

Chinese health authorities say that the majority of the people who have died were either elderly or had underlying health problems.

The virus is spreading at a rapid pace but researchers are far from finding a vaccine.

Aside from Mainland China, the cases of coronavirus spreading have also been confirmed in Thailand, Hong Kong, Taiwan, Japan, Macau, Malaysia, Singapore, Australia, the US, France, Germany, South Korea, Canada, Vietnam, Cambodia, Nepal and Sri Lanka.


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