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Oil prices fell 2 per cent on Thursday on concern that the spread of a virus from China could lower fuel demand if it stunts economic growth, but losses were limited by a drawdown in U.S. crude inventories.

Brent crude futures fell $1.17, or 1.9 per cent, to settle at $62.04 a barrel. The session low was $61.25, the lowest since early December.

U.S. West Texas Intermediate (WTI) crude ended down $1.15, or 2 per cent, at $55.59 a barrel, after hitting $54.77, its lowest since November.

Two Chinese cities were put in lockdown on Thursday as health authorities around the world scrambled to prevent a global pandemic. The coronavirus outbreak has killed 18 people and infected nearly 630.

The potential for a pandemic has stirred memories of the Severe Acute Respiratory Syndrome (SARS) outbreak in 2002-03, which also started in China and caused a slump in travel.

“The market continues to retreat under demand concerns and shake off the rally after the OPEC production cuts,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.

With coronavirus cases detected as far as away as the United States, global stock markets also felt the effects of fears that the virus could spread further as millions of Chinese prepare to travel for the Lunar New Year this weekend.

“We estimate a price shock of up to $5 (a barrel) if the crisis develops into a SARS-style epidemic,” JPM Commodities Research said in a note.

The U.S. bank maintained its forecast for Brent to average $67 in the first quarter and $64.50 throughout 2020.

Amid recent heightened tension between the United States and Iran, the United States on Thursday imposed Iran-related sanctions on two individuals and six companies, including four firms tied to the National Iranian Oil Company.

Tempering losses, U.S. crude inventories fell 405,000 barrels last week, although gasoline stockpiles rose to their highest on record after 11 weeks of consecutive builds, the Energy Information Administration reported.

“Crude inventories have ticked slightly lower in the last week, as a minor drop in imports has been offset by lower refining activity,” said Matthew Smith, director of commodity research at ClipperData.

China, meanwhile, released data showing gasoline exports rose by nearly a third last year thanks to new refineries.

This week, the International Energy Agency (IEA) said it expects a surplus of 1 million barrels per day in the first half of the year.