By Peter Nurse
Investing.com - Oil prices pushed lower Wednesday, amid worries over the impact the pneumonia-like virus in China could have on demand for crude from the world’s largest consumer.
By 11:07 AM ET (1607 GMT), U.S. crude futures traded at $56.90 a barrel, down 2.6% and their lowest level in seven weeks, while Brent was 2.3% lower at $63.20.
Earlier Wednesday, Chinese authorities confirmed 473 cases of the coronavirus, with National Health Commission vice-minister Li Bin telling reporters there was evidence of "respiratory transmission" of the virus.
This brings back memories of the 2002 SARS epidemic, which caused around 800 deaths and resulted in an estimated 1% hit to China’s gross domestic product.
“Translating the estimated SARS demand impact into 2020 volumes points to a potential 260,000 barrels per day negative shock to global oil demand on average,” Goldman Sachs (NYSE:GS) said in a research note dated Jan. 21.
“Such a demand impact (without an OPEC supply response) would point to an only $3/bbl impact on oil prices, although the initial high uncertainty could lead to a larger sell-off, as was the case in March 2003,” the bank added.
That means oil could even dip by as much as $6 per barrel — as it did at the height of the SARS epidemic in 2003, based on historical Investing.com data — before OPEC does something drastic to pull the market back higher.
Indeed, such is the perceived oversupply of the market that the loss of nearly all of the production from OPEC member Libya, where an attack by warlord Khalifa Haftar ended a brief ceasefire agreement earlier on Wednesday, appeared to have little impact.
Oil supply is still likely to rise in the near future, with the U.S. Energy Information Administration stating Tuesday that U.S. production is expected to rise to record highs in February, although the pace of the increase is weakening.
Eyes will turn later to the release of the weekly API inventory data, due at 16:30 ET (2130 GMT), after last week’s build of 1.1 million barrels.