By Barani Krishnan
Investing.com – The fear of the unknown has become bigger in oil’s pricing than the known barrels out there. Crude prices hit nine-week lows on Thursday as a global risk flight on fears over the new coronavirus pushed the oil market closer to its worst monthly loss since May.
New York-traded West Texas Intermediate, the benchmark for U.S. crude, sunk for a fourth-straight day and was down $1.52, or 2.7%, at $55.22 per barrel by 1:36 PM ET (18:36 GMT).
Earlier in the session, WTI sunk to $54.77, its lowest since the week of Nov. 17, as traders ignored a relatively neutral weekly supply-demand report from the Energy Information Administration to focus on the potential fallout from the new coronavirus, known as the 2019-nCoV.
London-traded Brent, the global crude benchmark, was down $1.51, or 2.4%, at $61.70. Brent hit a seven-week low of $61.26 earlier.
With just about a week left to January, WTI is down 9.7% on the year, putting it on track to its worst monthly loss since the 16.3% decline in May.
Brent is down 6.9% on the year and could see January as its biggest-losing month since August when it fell 7.3%.
Oil fortunes have nosedived after a 35% gain for WTI in 2019 and 24% for Brent. The market appeared to be on good footing just after the New Year began as U.S.-Iran tensions initially sent crude prices rallying. But that upside was quickly lost as calm returned to the Middle East, and oil bulls have had trouble since capitalizing even on supply blockades in major producing countries Libya and Iraq.
Now, the market is gripped by fear about the 2019-nCoV, and what its impact will be on oil, a specter that analysts say remains largely unquantifiable despite comparisons to legacy health epidemics like the 2003 SARS.
The flu-like virus, which can be transmitted from person to person, has killed 18 people in China so far and infected more than 600. Wuhan, the Chinese city of 11 million people where the outbreak started in December, is under lockdown as authorities in Beijing and elsewhere attempt to contain the outbreak. Analysts warn of a larger fallout to global travel and other economic activity that could dent world growth.
“2020 is starting with a Black Swan event in the form of the coronavirus,” said Olivier Jakob, founder of Zug, Switzerland-based oil risk consultancy PetroMatrix.
“A black swan event is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. This is an event that risk managers do not like.”
Goldman Sachs (NYSE:GS) said in a note on Tuesday it anticipated a 260,000-barrels-per-day negative shock to global oil demand on average, including a 170,000-bpd loss of jet fuel demand, from the 2019-nCoV. Its analysis was based on comparison with the 2003 SARS health epidemic, which shook global markets, including oil.
The weekly oil supply-demand report issued by the Washington-based EIA, showed crude stockpiles fell by 0.4 million barrels during the week ended Jan. 17, against forecasts for a decline of 1.0 million barrels. Crude stocks dropped by 2.5 million barrels in the prior week to Jan. 10.
Gasoline stockpiles gained by 3.1 million barrels, versus expectations for a build of 3.1 million. They rose 6.7 million barrels a week earlier.
For distillates inventories, the EIA reported a decline of 1.19 million barrels, versus bets for a rise of 900,0000-barrel. In the previous week, distillate stockpiles jumped 8.2 million barrels.