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Oil slide extends as US quarantine efforts, carrier cancellations add to demand concerns

Highlights

US declares public health emergency, mandates quarantines

Delta, American Airlines suspend service on China routes

WTI curve moves into contango as demand outlooks dim

New York — Oil futures price declines extended Friday as demand concerns took center stage amid the further spread of coronavirus outbreak across China and around the world.

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ICE March Brent settled down 13 cents at $58.16/b and NYMEX March WTI was 58 cents lower on the day at $51.56/b.

With the number of confirmed cases rising to nearly 10,000 globally, the virus claiming at least 213 lives, and airlines halting flights to China, the Dow Jones Industrial Average fell over 600 points Friday, wiping out January's gains.

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US Department of Health and Human Services Secretary Alex Azar declared the outbreak a "public health emergency," according to media reports. The order, which goes into effect Sunday afternoon, will require 14-day mandatory quarantine for all US citizens returning from Hubei Province, China.

The order comes on the heels of the US Centers for Disease Control ordering a 14-day quarantine of the 195 US citizens recently returned from Wuhan earlier this week.

The US Department of State Thursday issued a "Level 4" advisory recommending US citizens avoid all travel to China.

"Fear seems to be the main theme of the market," Tradition Energy analyst Gene McGillian said, adding that the market is signaling that demand destruction may reach the higher end of estimates.

NYMEX February ULSD settled 1.51 cents lower at $1.6245/gal and February RBOB was down 50 points at $1.4887/gal at market close.

The outbreak is expected to blunt global oil demand by at least 900,000 b/d in February and 650,000 b/d in March, according to S&P Global Platts Analytics. In a worst case scenario involving travel curtailments, demand could drop by up 2.6 million b/d in February and 2 million b/d in March.

Reduced demand outlooks have weakened crude forward structure. Front-month WTI fell to a 15 cent/b discount to the sixth-month contract Friday, opening the first contango in that part of the forward curve since July 2019.

Delta and American Airlines will fully suspend service to China in early February, according to media reports Friday, after announcing reduced service to the country earlier this week.

A number of European airlines have also suspended service to China, with British Airways and Lufthansa at the forefront of the movement. Major carriers in the Persian Gulf, however, have maintained flight numbers, with Qatar Airways, Etihad Airways and Emirates operating normally as of Friday morning.

The Singapore jet crack spread against Brent ended Friday at $8.46/b, down from from $11.34/b January 20, Platts data shows.

A sharp reduction in air travel to China could blunt 300,000 b/d of Chinese jet fuel demand in February and March, according to a Facts Global Energy report released Friday. While demand is expected to rebound past April, the impact is likely to hold year-on-year jet fuel demand flat in 2020, down from previous growth estimates of 70,000 b/d, FGE said.

OPEC+ mulls moving meetings to February

Energy minister Alexander Novak said Friday that Russia is ready to move the OPEC+ meeting forward if necessary, Prime news agency reported.

"We can meet earlier, it's not a problem. We can meet very quickly if necessary. We can even reschedule the meeting. We have discussed it; we are ready to move it. But regarding timeframes and dates, we are in the discussion stage, based on an assessment of the situation," Novak told reporters in Almaty, Kazakhstan.

Some OPEC+ participants have called for the group's meetings, which are currently scheduled to take place on March 5-6, to be moved up to February to more quickly react to the oil price slide triggered by the coronavirus outbreak. Brent and WTI have each fallen more than 10% in the past two weeks

Even if OPEC+ were to move its meeting and agrees to rein in more production to prop up prices, the physical oil market would see a delayed impact. March loading programs and allocations have already been set, so any OPEC+ decision would affect April shipments at the earliest. Holding the meeting on its scheduled date would push any changes to the May loading program.