Yesterday’s continued oil price drops seems odd when surveying the entire oil landscape. Heavy losses stemmed from the World Health Organization’s proclamation that the coronavirus is a world health emergency, and the US government recommended US citizens evacuate the country. Over 10,000 have been infected by the virus, with now over 200 casualties. Despite the rapid spread of the illness, the WHO suggested that it’s too early to begin grounding flights, and commerce should continue flowing as normal. A new Goldman Sachs report points out that past epidemics have had a large, though brief, effect on country GDPs, suggesting China may see several percentage points trimmed from Q1 GDP growth.
But step back and put the $13 decline in context. Last week, Goldman Sachs estimated the demand loss would be around 260 kbpd, roughly one quarter of one percent of global demand. Right now, Libyan conflict has caused an 800 kbpd (70%) drop in oil production – three times the impact of the coronavirus. Yet the virus scare has seen crude prices fall $14/bbl, which coincidentally, is more than the amount crude oil rose when Saudi Arabia lost half its oil production for weeks, affecting 5% of the world’s crude.
Epidemic outbreaks are a serious matter and can certainly have a big effect on global economics and oil demand. While disease fears must be taken seriously and there certainly will be an effect on travel and commerce, it seems the markets are ignoring more bullish fundamentals and focusing entirely on a worst-case assessment of the virus.
Today’s Pricing Update
After a big drop yesterday, the decline in crude continues this morning, though at a more moderate pace. Crude oil is currently trading at $51.76, down 38 cents.
Fuel prices are rising this morning, a rebound after 3:2:1 crack spreads fell so low. Diesel prices, which fell 6.4 cents yesterday, are trading at $1.6410, up 0.1 cents from yesterday’s closing price. Gasoline prices fell just 3.7 cents yesterday, and today is at $1.5095, up 1.6 cents.