Oil tumbled on fears China’s deadly coronavirus will crimp demand, prompting Saudi Arabia to say it was closely monitoring the situation.
Futures in London and New York plunged more than 3% as the death toll and the number of infections rose, while officials extended the Lunar New Year holiday to help stem the spread of the outbreak. Goldman Sachs Group predicted that global oil demand may take a hit, but Saudi Arabia said it believes the crisis so far will have a “very limited impact” on consumption.
Saudi Energy Minister Prince Abdulaziz bin Salman said the world’s largest oil exporter was closely monitoring the situation both for its impact on the Chinese economy and the oil market fundamentals. Yet, he said that the same “extreme pessimism” that’s afflicting the market also occurred in 2003 during SARS, “though it did not cause a significant reduction in oil demand”.
“The current impact on global markets, including oil and other commodities, is primarily driven by psychological factors and extremely negative expectations adopted by some market participants despite its very limited impact on global oil demand,” the prince said in a statement.
Global oil demand may slip by 260,000 barrels a day this year and could shave almost $3 from the price of a barrel of crude, Goldman Sachs said last week, using the 2003 SARS epidemic as a guide.
China extended the Lunar New Year holiday until Feb. 2 from Jan. 30. There are more than 2,700 confirmed cases of infection in China so far and Canada confirmed its first case while the U.S. announced a fifth, as the virus spreads to at least 15 countries and territories.
“The ultimate worst case scenario is getting priced into oil,” said Stephen Innes, chief market strategist at AxiCorp. “The move is exaggerated because there is lot of oil in the market at the moment. Fear is driving markets.”