The Straits Times says

Oil markets slide as virus spreads

The oil markets rallied on Wednesday, reportedly on the news that a university in China is close to finding a treatment for the coronavirus which originated in Wuhan and has now turned into a global pandemic, with infections having spread to more than two dozen countries. But the rally looks suspiciously like what traders call a "dead cat bounce" - in other words, a small and temporary recovery. So far this year, oil prices have fallen more than 15 per cent - despite the northern hemisphere winter, which is usually the peak period for oil demand. There are good reasons to believe that there is more downside to come.

First, China, which is the source of the new coronavirus and is the country by far the worst hit by its outbreak, happens to be the world's biggest consumer of oil, absorbing about 13 per cent of global production. China's oil demand is already down 20 per cent this year. Second, the new coronavirus is still far from having run its course, with infections and fatalities continuing to rise. The severe acute respiratory syndrome (Sars) pandemic of 2003 led to a peak-to-trough decline in oil prices of about 30 per cent. Given that the coronavirus has already had a bigger, and more global, impact, it stands to reason that the fall in oil prices this time is likely to at least match, if not exceed, that during Sars. The disruption in the travel industry, which is one of the first to be affected by any pandemic, is also far greater this time, with several international airlines having reduced or cancelled flights to China, leading to a precipitous drop in the demand for jet fuel.

Please or to continue reading the full article. Learn more about ST PREMIUM.

Enjoy unlimited access to ST's best work

  • Exclusive stories and features on multiple devices
  • In-depth analyses and opinion pieces
  • ePaper and award-winning multimedia content
A version of this article appeared in the print edition of The Straits Times on February 07, 2020, with the headline 'Oil markets slide as virus spreads'. Print Edition | Subscribe