On Tuesday, Barclays stated that oil prices are going to be affected by $2 per barrel due to threats from coronavirus outbreak in China which has led to potential economic fallout.
Affect of Coronavirus!
More than 100 people have perished and over 4,000 cases of the new virus have been registered in China, the leading authorities of the country has amplified preventive measures and have imposed restrictions on travel and also extended the holidays for Lunar New Year, to put a halt on the spread of the virus.
“While it remains to be seen how quickly the spread of the virus is contained, experience from the 2003 SARS outbreak suggests demand worries are likely overdone,” the bank said.
The bank observes a $2 per barrel fall to their full-year Brent and WTI forecasts of $62 per barrel and $57 per barrel, respectively.
“The near-term potential of a nationwide travel shutdown is high,” said the president of Eurasia Group, Ian Bremmer, a political and market risk consultancy.
Integrating the effects of the spillover to economic growth from China and its region, Barclays is expecting temporary oil demand corrosion of about 0.6-0.8 million barrels per day (mb/d) during the first quarter of this year, or maybe 0.2 mb/d considering the full year.
“If air passenger traffic in China declined by half in the first quarter of 2020, it would likely lead to a 300,000 barrels per day year on year decline in jet-kerosene demand from China,” the bank stated adding the decrease in road transport would likely be less harsh as compared to the past given decreased reliance on buses.
Barclays expects some help
Barclays is expecting the Organization of the Petroleum Exporting Countries along with other allies to come in and take further steps to maintain the markets in a tight position, in case there is an acute fall in demand.
For the last six sessions, oil prices have been down; however, the bank stated that the market reaction was a bit overdone.
Barclays said the actual economic fallout from the coronavirus could be less severe than the 2003 SARS outbreak, given that the new virus seems less lethal than SARS so far and the measures taken by Chinese authorities.
The bank expressed that the geopolitical risks to global supplies are maintaining a high ground as tensions between the United States and Iran could persist to gradually amplify and oil production in Libya could fall deeper if the barricade of crucial infrastructure facilities continues.
Right now, Brent crude prices LCOc1 are holding around $59 per barrel and U.S. WTI at around $53 per barrel.
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