Coronavirus Fears Panic Markets
January 27th, 2020
The spread and fear of the coronavirus has gotten to the point where it has put a panic in the markets. Traders are worried that the spread of the virus and more than 50 million people now essential under quarantine traders worry the demand for crude oil and base metals in China will be decreased. The energy market opened lower overnight and the selloff has picked up speed as we get closer to normal work hours. All of this selling despite a rocket attack on the US Embassy in Baghdad overnight. The fear over coronavirus has overwhelmed the markets for now. Energy price are getting beat down and are oversold on a technical basis, but the current fears can lead to an extreme reaction.
The bears currently have the upper hand and all things seem to be on their side. The fundamentals for energy near term are not supportive. With the coronavirus shutting down millions of people in China from traveling energy demand will be substantially reduced. Global energy supplies are in good shape so the demand destruction from this is big and with ample supplies and strong production the bears have many things in their favor. These factors are creating a big sell off that is currently going on in the energy markets. The big phycological $50-dollar level on WTI crude oil is now within site and will likely get tested.
Baker Hughes reported on Friday that US firms had add rigs for the second week in a row. US crude oil rigs were up 3 rigs to a total of 676 rigs.
Russia’s TAAS news agency cited an OPEC sources as saying that OPEC is discussing extending its oil cuts until the end of the year as the market still looks bearish, but the discussions are still at an early stage.
China’s quarantine is much more aggressive than in the past as airports, train stations, and factories are closed. As a result, the impact on energy demand could be substantial. The fear is also that this will impact not only China’s economy but the overall global economy.