Oil Plunges on Fears of Virus Spiraling Into a Global Pandemic

Bloomberg

Published Feb 25, 2020 01:19

Updated Feb 25, 2020 05:52

Oil Plunges on Fears of Virus Spiraling Into a Global Pandemic

(Bloomberg) -- Oil tumbled on intensified fears that the coronavirus will harm global growth as the contagion spread to more than 30 countries.

Futures fell more than 5% in New York on Monday, the largest drop since early January as the deadly virus spread more widely outside China, raising the threat of a global pandemic. Infections spiked again in South Korea and Iran, while Afghanistan, Bahrain and Kuwait all reported their first cases.

“The growth of the contagion outside of China is starting to raise the prospect that this becomes a pandemic,” said Daniel Ghali, a commodities strategist at TD Securities. “If that occurs, the hit to oil demand would be far greater than what we’ve seen thus far.”

The decline reflects a broader market sell-off as the spread of the virus outside China spooks investors. Asian and European equities slumped along with U.S. futures, while the Australian dollar retreated along with the offshore yuan. The OPEC+ alliance led by Saudi Arabia has struggled to agree on a collective response, dropping the idea of an early emergency gathering amid opposition from Russia.

West Texas Intermediate for April delivery fell $2.62 to $50.76 a barrel as of 11:45 a.m. local time on the New York Mercantile Exchange.

Brent for April settlement declined $3.01 to $55.49 on the ICE (NYSE:ICE) Futures Europe exchange. Until Friday, Brent crude had been on the longest run of gains in more than a year thanks to Chinese fiscal stimulus and new threats to supplies from Africa and Latin America.

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The International Monetary Fund cut its global growth forecast and warned that it’s also looking at more “dire” scenarios. Investors are concerned that risks to raw-material demand are worsening.

Amid the flight to haven assets, gold prices climbed to seven-year highs and bonds also advanced.

Industrial commodities were also hit hard, with copper sliding 1.4% and rubber sinking more than 2% in Singapore. Agricultural commodities weren’t spared, with U.S. wheat among the biggest losers. May corn futures in Chicago sank 4.6%, with soybeans also dropping.

“The uncertainty around how cases outside of China evolve is likely to keep market participants nervous, and therefore markets are likely to remain volatile,” ING Bank commodity strategist Warren Patterson said.

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