Oil drops below $60 as China virus stokes demand concern
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[January 27, 2020] By
Katya Golubkova and Ron Bousso
LONDON (Reuters) - Crude prices extended
declines on Monday, dropping below $60 for the first time in nearly
three months, as the death toll from China's coronavirus rose and more
businesses were forced to shut down, fuelling expectations of slowing
oil demand.
Brent crude <LCOc1> was down $1.51 a barrel, or 2.5%, to $59.18 at 1254
GMT, its lowest since late October and the biggest intra-day fall since
Jan. 8.
U.S. crude <CLc1> was down $1.37, or 2.53%, at $52.82. Both contracts
had earlier fallen by more than 3%.
Global stock exchanges also fell as investors grew increasingly anxious
about the widening crisis. Demand spiked for safe-haven assets, such as
the Japanese yen and Treasury notes.[MKTS/GLOB]
The death toll from the coronavirus rose to more than 80 and the Chinese
government extended the Lunar New Year holiday to Feb. 2, trying to keep
as many people as possible at home to prevent the virus from spreading
further.
The rapid spreading of the virus fuelled fears of slowing oil demand and
raised speculation that OPEC and its allies including Russia, a group
known as OPEC+, would consider deepening production cuts.
Saudi Arabia and the United Arab Emirates, allies in the Organization of
the Petroleum Exporting Countries (OPEC), tried to play down the impact
of the virus on Monday, with Riyadh, the de-facto OPEC leader, saying
the group could respond to any changes in demand.
Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman Al-Saud said
on Monday he felt confident the new virus would be contained.
Markets are being "primarily driven by psychological factors and
extremely negative expectations adopted by some market participants
despite (the virus') very limited impact on global oil demand," the
minister said.
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Pump jacks operate at sunset in Midland, Texas, U.S. February 11,
2019. REUTERS/Nick Oxford
"Such extreme pessimism occurred back in 2003 during the SARS outbreak, though
it did not cause a significant reduction in oil demand," Prince Abdulaziz said
in a statement.
The OPEC+ group has been withholding supply to support oil prices for nearly
three years and on Jan. 1 increased an agreed output reduction by 500,000
barrels per day (bpd) to 1.7 million bpd through March.
OPEC+ "have the capability and flexibility needed to respond to any
developments, by taking the necessary actions to support oil market stability,
if the situation so requires," Prince Abdulaziz said.
Brent crude oil prices have dropped by more than 14% since a spike in tensions
between the United States and Iran briefly lifted prices above $70 a barrel on
Jan. 8.
The losses since are in spite of a 75% drop in output from Libya to less than
300,000 bpd due to an ongoing blockade of oilfields.
"Macro concerns over energy demand due to curtailed movement of people and trade
have been weighing on an oil market that is otherwise tight due to ongoing
supply concerns in Libya and OPEC+ output cuts," Dutch bank ING said in a note.
(GRAPHIC: Map showing places with confirmed cases of 2019-nCoV - https://graphics.reuters.com/CHINA-HEALTH-MAP/0100B589312/coronavirus-map.jpg)
(Additional reporting by Aaron Sheldrick in Tokyo and Shadia Nasralla in London;
Editing by Kirsten Donovan and Mark Potter)
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