Saudi Arabia: Coronavirus slashes oil prices in February
February 7, 2020
Oil prices tumbled over the past month, as markets considered the impact that the recent outbreak of the coronavirus outbreak could have on the Chinese economy and, in turn, oil demand. On 7 February, the OPEC oil basket traded at USD 55.7 per barrel, a 20.0% fall from the same day in January. Moreover, the price was 9.5% lower than on the same day in 2019 and down 18.0% from the start of the year.
The coronavirus—which was traced back to a live animal market in Wuhan, the capital city of China’s Hubei province and also home to roughly 11 million people—paralyzed transportation and industrial activity across the nation in the latter half of January, weighing heavily on oil demand. Oil prices sunk in tandem, and were panicky that the outbreak could be worse than reports had shown.
In late January and early February, the outbreak continued to weigh on oil prices as factories and businesses temporarily shut down production, cities inside China were quarantined and international travel to and from China was virtually brought to a halt—all of which has dragged on oil demand. The virus has also had ripple effects through global supply chains, particularly in the auto industry. This has and will likely continue to weigh on the outlook for the Chinese economy—the world’s single largest crude oil importer. Consequently, oil consumption is expected to fall ahead which could continue to push oil prices lower.
Meanwhile, OPEC+ committee held an emergency meeting in the week ending 7 February to discuss the potential of further supply cuts—approximately 600 thousand barrels per day (tbpd)—to support prices, but a consensus was not reached. The next meeting is scheduled in early March.
Combined crude oil output among OPEC members fell from 29.61 million barrels per day (mbpd) in November to 29.44 mbpd in December, mostly reflecting Saudi Arabia limiting oil production. Saudi output fell from 9.87 mbpd in November to 9.76 mbpd in December. Oil production also declined in Iraq, Iran, UAE and Libya although sizeable gains were recorded in Angola.
Author: Steven Burke, Economist