(Bloomberg) -- Oil stabilized after sinking to the lowest level since mid-October, as investors weighed the extent to which China’s coronavirus would hurt fuel demand.
Futures rose 0.9% in New York, after losing more than 9% during five straight days of declines. The U.S. Centers for Disease Control and Prevention advised travelers to avoid all non-essential trips to China. Saudi Arabia said OPEC and its allies are prepared to take action to stave off any supply imbalances.
There’s some short-covering “after the worst case demand scenario got priced in,” said John Kilduff, a partner at Again Capital LLC in New York. Sentiment improved after the sell off captured the attention of Saudi Arabia and China ramped up efforts to contain the outbreak, he said. “They’ve shown the market they’re not going to take this lying down.”
Chinese authorities have locked down cities with a combined 50 million people around the outbreak’s epicenter in Wuhan, and will stop individuals traveling to Hong Kong.Fatalities increased to 106 in China, and infections have been reported throughout Asia as well as in the U.S., France, Canada and Germany.
Flight activity in the five airports closest to Wuhan plunged 48% from the previous week, while aviation traffic in Shanghai and Shenzhen also fell, even though Lunar New Year holidays should have increased it, according to RBC Capital Markets. Profits from producing jet fuel in Asia fell to the lowest in nearly four years.
“Given the uncertainty over containment, duration and economic impact of the coronavirus outbreak in China, the oil market has understandably been focusing on the negative effect the virus will have on oil demand, notably in jet fuel,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas (PA:BNPP) SA.
See also: Oil Experts See $5 Downside, OPEC+ Response as Virus Spreads
Saudi Arabia, the world’s biggest oil exporter, attempted to reassure markets this week by saying it saw “very limited impact” on demand from the virus. Yet as the Organization of Petroleum Exporting Countries is already implementing steep production cuts, it’s unclear how much more the cartel is willing to do to defend prices.
With traders focused on demand, oil markets have largely ignored a political crisis in Libya that has choked off the OPEC nation’s exports. Eastern-based general Khalifa Haftar blockaded the country’s ports earlier this month while haggling over a peace settlement with the national government.
West Texas Intermediate for March delivery rose 45 cents to $53.59 a barrel on the New York Mercantile Exchange as of 11:17 a.m. local time. It closed at $53.14 on Monday, the lowest since Oct. 15. The grade has lost 12% so far in January, set for the biggest monthly decline since May.
Brent for March settlement rose 50 cents to $59.82 a barrel on the London-based ICE (NYSE:ICE) Futures Europe exchange after falling 2.3% on Monday.
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