By Peter Nurse
Investing.com - Oil prices slumped Thursday, falling near to three-month lows after a surprise increase in U.S. crude inventories compounded fears of falling demand from a virus-hit China.
By 9:30 AM ET (1430 GMT), U.S. crude futures were down 2.1% at $52.20 a barrel, having briefly dipped below $52 earlier in the day. Brent, the global crude benchmark, was down 2.3% at $57.55 a barrel.
These are approaching levels last seen in October, with the price of oil heading for the biggest monthly drop since May.
The U.S. Energy Information Administration reported that crude supplies in the country rose by 3.5 million barrels for the week ended Jan. 24 - the largest weekly climb since the 7.9 million barrel rise in early November.
This really spooked the market after the trade body the American Petroleum Institute reported a decline of 4.3 million barrels on Tuesday.
At the same time the news surrounding the spread of China’s deadly coronavirus continues to be worrisome. The death toll has climbed to 170, with more than 7,700 affected. Infections have been reported in at least 15 other countries, including India, and in every province of mainland China.
A large number of companies have suspended their China operations for the time being as part of the effort to contain the disease, while international airlines have cancelled flights and domestic travel has been curtailed.
“Wider travel restrictions are apparently hitting oil demand through jet fuels, gasoil and other middle distillates within China, along with any spillover across the region,” said analysts at ING, in a research note.
“Overall, the global transportation industry accounts for around half of the demand for global crude imports – and has been rising rapidly.”
Analysts are cutting their forecasts for Chinese crude consumption due to the virus, with jet fuel demand most affected. Earlier Thursday, Morgan Stanley (NYSE:MS) said consumption growth could take a 75,000 barrel-a-day hit if the outbreak continues to escalate for three to four months.
The sharp drop in oil prices has caused concern in a number of countries dependent on oil revenues for their funding.
As a result the Organization of the Petroleum Exporting Countries is considering moving up its March meeting, S&P Global Platts reported on Wednesday.
"It is very likely to advance to February the OPEC meeting, initially scheduled for the beginning of March, so that we can find the means to ensure market balance," Algeria’s energy minister Mohamed Arkab said on Wednesday, according to state news agency APS.
The market still seems to be ignoring the loss of nearly 1 million barrels a day of output from OPEC member Libya due to the recent escalation of its civil war. Data published by the national oil company on Thursday showed current production running 930,000 b/d below capacity.