Coronavirus oil prices sank more than 6 percent



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Coronavirus oil prices sank more than 6 percent



Oil prices in the world markets also fell last week, for the third consecutive year, by more than 6 percent, as a result of investors' fear of the economic consequences of the spread of coronaviruses in and outside China.

In the London market, barrel prices fell 6.4 percent last week to $ 60.69, its biggest weekly decline since December 2018.



In the US market, the barrel fell 7.4 percent to $ 54.19, the highest since July last year.

Prices fall due to the spread of the virus

The sharp fall in oil prices is the result of the spread of coronavirus, a disease similar to pneumonia, of which 80 people have died so far in China, with more than 2,750 infected worldwide, most notably in China.

The virus was first detected in downtown Wuhan late last year, and has since spread to more Chinese cities, including Beijing and Shanghai, with more and more cases outside China – in the US, Thailand, South Korea, Japan , Taiwan, France, Canada …

Investors fear the negative effects on the economy of China, the world's second-largest oil consumer, as the Chinese New Year begins when millions of people usually travel.

But this time, authorities in a number of Chinese cities have canceled New Year's Eve celebrations and other mass events, and measures implemented in China include quarantining over Wuhan and several other major cities in the region to curb the spread of the virus.

Consumption in China is expected to decline, revenue in the tourism sector as well as in the aviation sector.

“We need to be prepared for the bad surprises when it comes to Chinese demand. The impact of restrictions is even greater as measures are introduced at a time when the Chinese are traveling the most,” says Eugen Weinberg, an analyst at Commerzbank.

National Australia Bank analysts estimate, however, that China's gross domestic product (GDP) growth could be hit by 1 percentage point in the first quarter.

This is why investors fear the fall in oil demand.

“It's all about coronaviruses, and there's no indication that the situation will improve any time soon,” says Phil Flynn, an analyst at Price Futures Group.

Oil reserves are rising

The pressure on oil prices is also a consequence of the growth of world reserves.

The Organization of the Petroleum Exporting Countries (OPEC) announced last week that stocks in industrialized countries are above the five-year average.

In the US, however, gasoline inventories have risen for the 11th consecutive week, reaching record levels.

“It's hard to be constructive about the oil market until we see a fall in world reserves,” says Andy Lipow, president at Lipow Oil Associates.

OPEC and a group of third-party manufacturers led by Russia agreed at the end of last year that it would reduce supply by a total of 1.7 million barrels a day in the first quarter of this year to reduce supplies and support prices.

Their agreement expires in March, and analysts believe OPEC should further reduce production.

The Saudi oil minister said they were ready to consider all options, including a further reduction, at the next regular meeting in March.

And while OPEC is reducing production, the US and some other countries have been increasing it for a long time.

Oil production is at record levels in the US, and a report by Baker Hughes, released on Friday, showed that the number of active plants in the United States increased for the second week in a row, to three, for a total of 676.

Coronavirus oil prices sank more than 6 percent

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