Brent crude is rebounding 0.5% this morning to $62.4/bl following yesterday’s sell-off which took it down to an intraday low of $61.25/bl. Goldman was early out stating that a SARS like event would knock $3/bl off the oil price. That is exactly what we have seen so far in broad terms. Nervousness in the market is now starting to come off a little bit. With 25 reported deaths vs 830 officially infected (+1,027 suspected cases) we are looking at a death rate of 3%. In comparison the SARS virus in 2003 had a death rate of 10%. Also, it turns out that the Corona virus was discovered already in December. It has thus been around for a little longer making the sense of explosive spreading a little less explosive.
It is still too early to call off the scare totally but concerns and tension is a little lower now than just a day or two ago. The lunar holiday in China with a lot of traveling has the potential to spread the virus so the market is awaiting to see how that turns out. So, a little too early for a strong rebound in the oil price yet, but the worst from the first sell-off may be behind us. Then wait and see how this spread over the lunar holiday. Everyone knows that sooner or later we’ll get a repetition of the 1918 Spanish flue which infected 500 million people and killed as many as 100 million. But this one does not look like the one. S&P Ratings is out warning that if the situation gets worse it could knock off 1.2 percent of Chinese GDP growth this year. Oil demand is naturally exposed to this kind of event as traveling is reduced.
Ch1: Brent crude traded down to $61.25/bl yesterday but is rebounding a little this morning as the most intense concerns for the Chinese Corona virus is easing a little bit. As for now the oil price is holding out quite well. Libya’s oil production of close to 1 million barrels is now more or less out of the market which helps to give some support to the oil price even though the outage is widely expected to be very short term.