New York — Oil futures settled down for a second day Tuesday as the continued spread of the coronavirus outside China weighed on demand outlooks and sent equity markets sharply lower.
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ICE April Brent settled $1.35 lower at $54.95/b, and NYMEX April WTI was down $1.53 at market close at $49.90/b.
The selloff "shows the underlying importance that demand plays in the market and in the calculus of its value," Tradition Energy analyst Gene McGillian said. "Right now, it seems demand destruction really has the market in its hold."
There have been 80,238 cases of coronavirus confirmed in 34 countries as of Tuesday morning, according to World Health Organization data. Mainland China accounts for just under 97% of confirmed cases worldwide, but its share has steadily dwindled from over 99% earlier this month as the diseases has rapidly spread beyond its borders.
Authorities in northern Italy have ordered the closure of schools, bars and other public spaces until March 1, following a flurry of new confirmed coronavirus cases.
NYMEX March ULSD settled 4.47 cents lower at $1.5685/gal, and March RBOB was down 7.67 cents on the day at $1.5324/gal.
The recent selloff in crude prices has weakened demand outlooks and narrowed the backwardation in the Brent forward curve. Year-ahead Brent futures settled at a 72 cents discount to the front month Tuesday, in from $1.75 on Friday.
The one-year NYMEX WTI structure has also collapsed, falling to an 11-cent backwardation Tuesday from $1.07 on Friday. The curve was still in contango through January 2021.
S&P Global Platts Analytics has revised its forecast of 2020 demand growth down by 470,000 b/d from its previous projection because of the coronavirus outbreak and above-average winter temperatures.
Front-month WTI traded through a key technical support level at $50/b. Open interest on the $50/b put stood at 14,503 contracts on Monday, MarketView data showed. The next significant level of open interest to the downside was at the $48/b level at 9,663 contracts. Open interest data is a day behind.
Implied volatility, a measure of downside price risk, for the front-month WTI contract jumped to around 42%, the highest since May 2019.
The $50/b level has proven to be a bottom for WTI prices in recent weeks. The front-month contract has fallen below this level on two occasions this month, but both times quickly climbed.
"$50 is a pivot point in market, we will wait to see if the sudden collapse back below $50 will warrant a response by producers, perhaps motivate Russia to do something before the meeting," McGillian said.
OPEC and its allies, including Russia, still appear to be wrangling over whether to institute deeper production cuts in response to the virus, ahead of their ministerial meeting scheduled for March 5-6 in Vienna.
Saudi energy minister Prince Abdulaziz bin Salman on Tuesday said his Russian counterpart, Alexander Novak, is still engaged in talks but had no update on whether a consensus on cuts was in sight.
Novak has been reluctant to commit to additional supply curbs, citing the uncertainties of demand forecasts.