Coronavirus fears are again sweeping markets and oil is no exception. Four weeks ago, WTI dropped from $53.14 on January 27 to $50.11 per barrel on February 3. That’s a drop of 5.7%, based largely on fears of Coronavirus. But, WTI then rebounded to $53.38 per barrel by February 21, even though the Coronavirus outbreak continued to spread. Today, the oil markets began far down again, and once again the cause is Coronavirus.
Oil prices dropped 4% on fears of Coronavirus
What happened to cause the rebound in between?
China imports more than 10 million barrels per day, while total global production is just over 100 million. China imports about one tenth of all oil produced globally every day. Thus, it seems that oil traders should have focused all month on the fear of a serious economic disaster in China plus the threat of a global slowdown in travel and the economy as a whole. Of all of the financial markets, the oil market should be impacted the most by Coronavirus simply because of China’s role in defining global demand.
But for almost three weeks, the oil markets seemed to avoid the Coronavirus hysteria only to let it return today. This could have been because the news reports out of China and other places were more optimistic, while over this past weekend there were new reports of more infections and fatalities in places like Iran and Italy. The rebound may have come because of oil traders trying to grab a quick profit off a low price at the start of February. Or, it is possible that there were elements trying to prop up the price with significant buying.
The big question now is whether his jolt means that the markets will continue to correlate with Coronavirus or whether we will once again see a reprieve from Coronavirus fears even if the virus continues its course.
