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Voltage drop in oil markets due to coronavirus

The viral pneumonia epidemic has caused a big drop in tension in the oil markets plagued by their worst month since May 2019 in New York and November 2018 in London and could upset the calendar of the black gold cartel.

The two reference barrels, the WTI listed in New York and the Brent listed in London, have suffered a decline of 16% and 12% respectively since the beginning of the year.

However, prices had jumped a few weeks ago at the peak of tensions between Iran and the United States.

But “oil prices have been extremely vulnerable to the epidemic” of the new coronavirus, says Craig Erlam, analyst with online broker Oanda.

The more it “spreads, the greater the potential economic impact and the impact on oil consumption,” he adds.

Appeared in December in Wuhan, central China, the coronavirus epidemic has spread widely in the country and forced the authorities to take drastic measures to slow down its economy, the second in the world.

Over the period from January 15 to 22, Chinese oil imports plunged by almost 2 million barrels per day (mbd) compared to the average in January 2019, and by 3 mbd compared to the beginning of 2020 , noted Kpler analysts who monitor tanker comings and goings.

Not to mention that the situation is getting worse day by day: the toll of more than 200 deaths has already exceeded the number of cases during the epidemic of severe acute respiratory syndrome (SARS). Chinese growth was cut by 2% in the first and second quarters of 2003, analysts said.

A trader in front of a table of stock market indices, January 6, 2020 in Dubai (AFP / Archives – Karim SAHIB)

Logically, “when the economic engine begins to fail, the need for fuel drops,” says Naeem Aslam, an analyst at Avatrade.

China is the world's second largest consumer of crude oil and it therefore plays a crucial role in balancing a market already weakened by an ever-increasing supply, notably due to the United States which is pumping at record levels thanks to the shale oil boom.

– “nervous” OPEC –

The outlook for falling demand comes at a time when the Organization of the Petroleum Exporting Countries (OPEC) is struggling to support oil prices already weakened by the plentiful supply of black gold and slowing global growth.

On the front, the Saudi Minister of Energy, Abdel Aziz ben Salmane, half-brother of the powerful crown prince Mohammed ben Salmane (MBS) and leader of the cartel, tries to reassure and sees in the drop in prices only investor “psychological” reaction.

Behind the scenes, “the dramatic fall of the past few days seems to make OPEC nervous,” said Carsten Fritsch, analyst at Commerzbank.

Brent crude, for example, sank below the $ 60 a barrel mark, one of the symbolic thresholds for analysts and a first since early November.

Questioned by the official Algerian agency APS, the Minister of Energy, Mohamed Arkab, indicated as “very likely” the advance to February of the meeting “so that we can find the means to ensure the balance of the market “. But this information was not confirmed by the cartel, joined by AFP.

Friday, the Russian Minister of Energy, Alexandre Novak, said he was ready for a meeting “very quickly if necessary”.

The group and its OPEC + allies, led by Russia, had left in December by scheduling an “extraordinary meeting” in early March, while the cartel is used to meeting every 6 months.

Bringing the meeting to the end of February could have the opposite effect as expected and send a “panic” signal to the market, added Fritsch.

If a further drop in the voluntary production limitation, or at least an extension of it after March, remains the main weapon of the cartel to support prices, it could not win the support of its members or its main ally , Russia.

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