Oil falls to almost $56 a barrel, its lowest in a year

Marco Green
February 4, 2020

Oil short-selling is surging as hedge funds brace for a catastrophic viral outbreak from China that's curbing travel and threatening global demand for jet fuel and other petroleum products.

While West Texas Intermediate, the USA benchmark, rose 1.3% on Tuesday, that's just the second increase since January 17.

The main catalyst for the sell off was the coronavirus, which has reduced demand for jet fuel because of the cancellations of more than 3,000 flights a day in and out of China, but also because of fears that the contagion could spread into the broader economy. The front-month WTI price fell 15.6% in January, the biggest monthly drop since May.

The coronavirus is the latest blow to the USA shale industry that has struggled to stay profitable.

Economists at Bank of America Securities say it's "too early to evaluate the economic impact of the outbreak", but caution that global growth could fall below 3 percent if "contagion is worse than expected". The bank's global research team now has its 2020 global growth forecast at 3.1 percent. The next meeting was scheduled for March 5-6.

The possibility of the coronavirus, which has now sickened more than 17,000 people and killed 362, having a prolonged impact on the global economy has set off alarm bells among OPEC and its allies.

The price for a barrel of oil dipped below $50 U.S. a barrel for the first time since January 2019 on Monday.

Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz discussed the global energy markets by phone Monday evening, the Kremlin said in a statement, adding that both leaders confirmed "readiness to continue cooperation within OPEC+".

OPEC's research department in Vienna has prepared two scenarios with different estimates of how the virus may affect oil consumption, according to a delegate, who asked not to be identified because the information is private. "We are discussing it very seriously".

Oil ministers will debate whether, and by how much, to cut oil production, with cuts of up up to 1m barrels a day - or 1% of world supplies - on the agenda, according to the New York Times.

Another scenario under consideration could see the kingdom implement a temporary cut of 1 million barrels a day to jar oil prices, cartel sources tell the Wall Street Journal.

Other reports by Click Lancashire

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