Oil prices sank about 1% on Tuesday as fears that energy demand would take a long-term hit from the growing coronavirus outbreak outweighed hopes for more production cuts from OPEC and its allies.
Brent crude settled at $53.96 a barrel, sliding 49 cents, or 0.9%, while U.S. West Texas Intermediate (WTI) crude settled at $49.61 a barrel, losing 50 cents, or 1%. Both benchmarks were at their lowest since January 2019.
“I think the fear of demand destruction continues to really have the market by its throat,” said Gene McGillian, vice president of market research at Tradition Energy in Stamford, Connecticut.
Oil slid sharply over the past two weeks on concerns over the global economic impact of China’s coronavirus, which by Tuesday had claimed 427 lives, infected 20,438 in mainland China and had been detected in roughly two dozen countries.
In early trading, it bounced higher on hopes of further output cuts from OPEC+, comprising the Organization of the Petroleum Exporting Countries and allies including Russia.
An OPEC+ committee weighed the impact on global oil demand and economic growth of the outbreak of the coronavirus at a meeting, hearing from China’s envoy to the United Nations in Vienna and discussing how to respond.
Sources close to the matter told Reuters that OPEC+ was considering cutting crude output by a further 500,000 barrels per day (bpd).
However, the producer group could face an uphill battle to put more cuts in place so soon after the existing pact was agreed to and because of uncertainty over how long the virus crisis will last.
“If the producer group believes the outbreak to be contained, with effects tapering out after a short period, like SARS, they have the option to stand pat and weather the lower price environment until demand returns,” the global head of commodity strategy at BNP Paribas, Harry Tchilinguirian, told the Reuters Global Oil Forum.
Price gains were also limited by Russian Energy Minister Alexander Novak’s comments that he was uncertain it was time to tighten oil output curbs.
BP finance chief Brian Gilvary told Reuters the economic impact of the coronavirus will reduce oil consumption for the whole year by 300,000 to 500,000 bpd, roughly 0.5% of global demand.
Goldman Sachs warned that the outbreak’s impact on demand is likely to keep spot-price volatility elevated.
“Oil prices are now at levels where we would expect a supply response from both OPEC and shale producers, and where China would likely seek to build crude inventories,” Goldman said in a note.