Oil prices fell for a sixth straight session on Friday and were on track for about a 12% weekly fall, the biggest in more than four years, as the spread of the coronavirus outside China raised fears of slowing global demand.
The virus, which has killed more than 2,700 people in China, has been found in another 46 countries and caused 57 deaths. Investors worry the epidemic could turn into a pandemic and deliver a damaging blow to the global economy.
The most active Brent crude contract for May (LCOc2) was down 90 cents, or 1.7%, at $50.83 a barrel by 0141 GMT, a 14-month low. The front-month April contract expires today.
The international benchmark, which fell about 2% on Thursday, has shed around 12% this week and is on track for its steepest weekly decline since mid-January 2016.
West Texas Intermediate (WTI) crude futures (CLc1) fell 73 cents, or 1.6%, to $56.36 per barrel. U.S. crude has fallen about 13% for the week, the biggest weekly decline since November 2014.
With new infections reported around the world now surpassing those in mainland China, the World Health Organization said on Thursday that all countries need to prepare to combat the coronavirus.
“Oil prices are moving tangentially to news flows around the deluge of secondary cluster outbreaks,” said Stephen Innes, chief market strategist at AxiCorp.
“And for the oil market, none more so worrying than those reports emanating from the U.S. market, which is the biggest consumer of oil on the planet by a long shot.”
U.S. health officials urged Americans to begin preparing for the spread of coronavirus in the United States earlier this week.
The oil market is hoping for steeper supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, who have said they will take a responsible approach in the wake of the virus outbreak.
The producer group known as OPEC+, which is currently reducing output by roughly 1.2 million barrels per day to support prices, is set to meet in Vienna on March 5-6.
“We now believe the group needs to make much steeper cuts than the 600,000 barrels per day (bpd) recommendation from their technical committee to support prices,” Jefferies analyst Jason Gammel said.
“At least a 1 million bpd cut for the second quarter strikes us as necessary to merely moderate inventory builds, and we confess to underestimating demand destruction over the last several weeks.”
Commenting on the impact of reduced oil prices on Nigeria’s economy and the risk of a recession, Lukman Otunuga, FXTM research analyst, said recession will continue to hang over the Nigerian economy for as long as crude oil remains the primary source of revenue.
“Falling oil presents negative consequences for the economy, especially when considering how roughly 90 percent of export earnings and over 50 percent of government revenues are from crude exports,” he said.
“What is even more alarming is Nigeria’s 2020 budget which has set the benchmark for oil at $57. With Brent and Crude both depreciating over 15 percent since the start of 2020, it raises tough questions whether Nigeria will meet its oil revenue goal of N2.64 trillion.
“The woes do not end here. Foreign exchange reserves are poised to decline on lower oil which not only complicates the Central Bank of Nigeria’s (CBN) efforts to defend the Naira but raises the risk of inflation running rampant.
“The toxic combination of lower government revenues, rising consumer prices and weakening local currency is more than enough to threaten Nigeria’s fragile economic recovery.”
Reuters/Vanguard
