The Coronavirus and Oil…Any Impact? Probably So
The start of 2020 hasn’t been good for the price of oil. Prices have sunk more than $10/barrel since the start of the year, dropping from $63/barrel to start the year to $52/barrel at press-time in early February.
And experts studying market trends say things could get even worse before they get better.
Because of a virus that wreaking havoc on the other side of the world, causing great uncertainty in the global economy for the next several months.
Oil experts say the coronavirus could cause continued problems for oil prices. The virus is wreaking havoc on Asia’s economy, battering the supply and demand of most economic commodities.
In the past several weeks, for example, copper prices have dropped 12 percent.
And experts say that the two markets — copper and oil — are usually tied together. When one goes up, so too does the other — and vice versa.
“The coronavirus will impact growth,” said BP CFO Brian Gilvary in an interview with Fortune. “And what impacts growth impacts the market. I think it’s a very safe assumption that price will linger as long as the virus is causing problems around the world, and that doesn’t seem to be something that will go away any time soon.”
The virus is continuing to spread.
At press-time, close to 500 people have died because of the virus and more than 25,000 people have been confirmed infected.
Fact is, the coronavirus has not yet proven to near as dangerous as the flu, which infects 26 million people each year and kills more than 30,000 people per year, on average.
But because of the uncertainty around the virus and the media craze, the markets have suffered.
Asia’s economy initially sputtered, then slowed to a halt, as China struggles to deal with the spread of the virus.
Of course, as China struggles, so, too, does the global market, and prices have tanked.
Copper’s dip came after Chinese plants closed, which slowed the manufacturing of several common products on our market.
Copper and oil are tied hand-in-hand, and a story on oilprice.com said that “copper is pretty much the best indicator of global economic strength and global demand.”
The reason for that correlation between the two is that the oil market so heavily needs copper and vice-versa, so they’re tied at the hip and copper’s plummet likely means that oil will continue to struggle.
Of course, as the market shrinks, so too does the demand for oil, which also shrinks the price.
In China alone, estimates show that there has been a 20 percent reduction in oil demand, and refineries in the Asian global economic power have greatly slowed their production.
Here in the United States, fracking and land drilling continues on and is contributing to the price dip, because supply hasn’t dropped with demand, thus creating a glut and lower prices.
So, what happens next?
There’s truly no way to tell.
If the virus quiets and the rate of its spreading slows, experts say there is a great chance that oil prices could slowly creep back up to the levels that they were at to start 2020 — prices near the $60/barrel range.
Some experts predict that this will happen.
Randy Ollengerger, the Managing Director of Oil and Gas Equity Research at BMO Capital Markets, said he believes the current price of oil is as low as the price will be in 2020 — a year that he says will be one of growth for the industry.
In an interview with Bloomberg, Ollenberger said the current dip in price is an overreaction and the market will correct itself.
But others aren’t quite as sure.
Taimur Baig, a Chief Economist and Managing Director for DBS, said that while he, too, thinks the coronavirus is going to level off, one can never be too sure.
Baig pointed to in 2003 when the SARS virus shook the global economy and the impacts that had.
SARS, too, was supposed to initially be a “short-term fad,” but then it lingered and caused real economic damage with longer-term impacts. •