Feb 26, 2020 - Energy & Environment

Coronavirus fears are causing oil prices to slide

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Data: Factset; Chart: Axios Visuals

Oil prices have resumed their slide in recent days, signaling renewed fears of how much the novel coronavirus will eat into demand.

Why it matters: It's a barometer of how the spreading and sometimes deadly illness is curbing global economic activity.

Driving the news: The latest estimate arrived Wednesday morning when Goldman Sachs analysts cut their 2020 demand growth forecast by 600,000 barrels per day from the prior 1.2 million.

  • This reflects "large demand declines in China, second derivative demand impacts in both OECD and non-OECD Asia, and some mild weather impacts in North America and Europe."
  • "If the coronavirus spreads further globally, then we expect further downside risk to our estimates," they said in a note.

What's next: All eyes will be on next week's meeting of OPEC+, which is the coalition of OPEC, Russia and other allied producers.

  • “OPEC+ may decide to trigger more supply cuts at next weeks meeting, but this may only have a limited effect on oil prices, as demand-side concerns are expected to continue having a major sway on the commodities complex,” FXTM analyst Han Tan tells Reuters.

The big picture: COVID-19 has killed more than 2,700 people and infected over 81,000 others.

  • By Wednesday morning, South Korea had the most cases outside China, with 1,146 infections. Europe's biggest outbreak is in Italy, where 322 cases have been confirmed.

Go deeper: The latest on the coronavirus

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Oil prices plunge as market absorbs OPEC-Russia split

A Kuwaiti trader checks stock prices at Boursa Kuwait in Kuwait City, on March 8, 2020. Photo: Yasser Al-Zayyat/AFP via Getty Images

Oil prices nosedived to four-year lows Sunday as trading resumed after Friday's collapse of the OPEC-Russia production-limiting pact, a rupture slated to increase supplies at a time when the novel coronavirus is sapping demand.

The state of play: The immediate 31% collapse when trading resumed last night was the second-largest on record behind the 1991 Gulf war, Bloomberg reports.

Oil plunges and industry pain spreads

Photo: Carsten Rehder/picture alliance via Getty Images

This morning is bringing fresh and stark signs of how economic contraction from COVID-19 is crushing the oil market and forcing companies to cut back.

The big picture: The price collapse stems from COVID-19 freezing a significant amount of travel and economic activity, and the collapse of the Saudi-Russia agreement to limit production.

New aftershocks from Saudi-Russia oil rupture

Photo: Alexey Nikolskey/Sputnik/AFP via Getty Images

Saudi Arabia plans to boost oil output and sharply cut prices, signaling the first response to Friday's collapse of OPEC's production-cutting pact with Russia and allied producers, according to multiple reports.

Why it matters: The unraveling of the OPEC+ agreement, at least for now, and declining oil demand due to the novel coronavirus' economic toll are upending global oil markets and geopolitics.