Oil selloff extends as coronavirus outbreak weighs on demand outlooks

Crude futures settled down for a fifth consecutive session Monday at three-month lows after as the coronavirus outbreak in China sparked concerns of lower demand growth, weighing on commodity markets.

ICE March Brent settled down $1.37 at $59.32/b, marking the first front-month close below the $60/b threshold since October 22. NYMEX March WTI was down $1.05 on the day at $53.14/b and was last lower October 9.

The Chinese government has extended the Lunar New Year holiday period, closing businesses in key provinces and suspending air and rail travel in a bid to contain the coronavirus. The coronavirus has now sickened 2,900 people globally, with cases emerging in the US and Europe, while the death toll across China has climbed to 82, including at least one death in the capital Beijing, according to CNBC.

Factbox: Commodity prices continue to fall as coronavirus spreads

"Oil prices are in freefall on concerns that China did not deliver prevention and control measures in time and that will ultimately lead to an extended drop in crude demand in the short-term," OANDA senior market analyst Edward Moya said in a morning note.

NYMEX February ULSD settled 5.45 cents lower at $1.6795/gal, and February RBOB was down 3.12 cents on the day at $1.4840/gal.

Oil prices extended their decline in after-market trading as equity markets moved sharply lower. The Dow Jones Industrial Average, which had been in the red all day, fell a another 100 points after the close of oil trading, contributing to a further 30-cent decline in Brent and WTI futures after-market settle.

S&P Global Platts Analytics is forecasting a drop of 200,000 b/d in oil demand for the next two to three months, reflecting roughly 15% of the expected oil demand growth in 2020.

If the coronavirus is as bad as the Sudden Acute Respiratory Syndrome (SARS) outbreak in 2003, oil demand could fall by 700,000-800,000 b/d, reflecting more than half of the expected demand growth for 2020, according to Platts Analytics.

Brent and WTI forward structures have weakened amid the recent selloff. The one-year Brent spread narrowed to $4.04/b, and the one-year WTI spread came in to $2.09/b, the weakest backwardation since min-November and late-October, respectively.

OPEC members are considering deeper production cuts, or extending their existing deal, in response to a slump in prices caused by the outbreak of coronavirus in China, according to a source in the group

"The next two weeks are very critical for not only the oil market but the global economy," the OPEC source said on Monday, speaking on condition of anonymity. "There is right now discussion among the ministers of OPEC+ of watching the market closely and preparing to do anything if there is a need for it."