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EnergyFuelNews

Fueled by concerns over the ‘China virus,’ oil markets tumble

Oil prices plummeted Wednesday before making a late-day comeback, with the possible spread of the coronavirus cited as the force behind the downturn.

Traders have looked over their data, searched their memories and are remembering that in 2003, when the SARS virus was impacting much of China and Hong Kong, international air travel fell sharply. Jet fuel demand fell with it.

Goldman Sachs gave a push downward to markets Wednesday when it said in a report the coronavirus and accompanying jet fuel decline could result in a 260,000-barrel-per-day drop in global oil demand. Percentage-wise, that is a fraction of the roughly 100 million barrels per day that the world consumes.

But in a market that is already looking at models showing supply exceeding demand in 2020, it is not insignificant. According to news reports of the Goldman Sachs forecast, a drop in demand of that magnitude, mostly coming from a drop in jet fuel demand, would reduce the price of Brent crude by $2.90 per barrel. Brent is the global crude benchmark.

Jet fuel, like diesel, is a distillate. A collapse in one would be expected to spill over into the other.

But even though it is jet fuel that is being fingered as the most likely product to take a hit if the coronavirus problem becomes something of an epidemic, the diesel market was somewhat stronger than most other oil benchmarks Wednesday, both in the commodity markets and physical markets.

On Tuesday, ultra low sulfur diesel (ULSD) dropped 1.61% to a settlement of $1.8292 per gallon. That was roughly a full percentage point larger decline than what was posted by the WTI and Brent crude benchmarks.

And on Wednesday, ULSD fell by about the same percentage: 1.59%, to $1.8002 per gallon. But that was less than WTI crude, which dropped 2.66%, and Brent, which declined 2.14%. RBOB gasoline dropped 3.48%.

In physical markets, diesel market spreads tightened. For example, the price of a pipeline quantity of ULSD in the Gulf Coast relative to the CME benchmark narrowed slightly, according to data provided by S&P Global Platts. It was negative 8.75 cents a gallon Wednesday; on Tuesday, it was negative 8.75 cents. A physical barge of ULSD in New York Harbor was 1 cent less than the ULSD CME price on Wednesday after being 2 cents less a day earlier.

The settlement prices were mostly on the high end of the day’s range, which swung wildly but were mostly trending upward as the day’s trading ended. The ULSD settlement of $1.8002 was about in the middle of a 6-cent range, large for a one-day session. Brent was $63.21 per barrel, toward the low end of a $62.95-$64.59 range, and WTI settled near the bottom of its $56.54-$58.38 range.

Andrew Lebow, president of Commodity Research Group and a longtime observer of petroleum markets, said the relative strength of diesel Wednesday compared to crude is a normal reaction given how much it has fallen relative to Brent and WTI in recent weeks. “Refined fuels have just been destroyed,” he said. “Margins are horrendous and eroding.” Markets will often take a break in that sort of trend after several days of moving in one direction, Lebow said.

The simple crack between front month Brent and ULSD on CME has fallen to about $12.40 a barrel. On the final day of 2019, it was more than $19. There are 42 gallons in a barrel.

As noted earlier, a drop in demand as a result of the coronavirus would fall on a market generally seen as oversupplied in 2020. That view got affirmation this week when Fatih Birol, executive director of the International Energy Agency, said during a forum at the Davos meeting in Switzerland that he expected a 1 million-barrel-per-day surplus in world oil markets this year.

But even as the coronavirus news and the Birol statement would work to push down prices, oil supplies are being affected by a cutoff of most Libyan supplies and a new problem with Nigerian supplies that developed Wednesday. And yet, the trend has been downward.

When traders holding long positions see that, Lebow said, it can persuade them it’s time to get out of the market. “You’re long and you’re looking at what’s going on and you wonder, what is it going to take to make this market go up?” Lebow said.


Diesel markets may get another downward push overnight and into Thursday on the back of the weekly report from the American Petroleum Institute. That report, released late Wednesday, showed U.S. distillate inventories building 3.5 million barrels. The S&P Global Platts forecast was for a build of 1.6 million barrels.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.

4 Comments

  1. WOW what a crock !

    Go look at the oil chart back to 1998 , then look at what price did in 2000 ! It pulled back a healthy 78.6% from its 2000 from the 1998 low , and then reversed in late 2001 . The pullback from the 2003 February high down to the 2003 April low was a typical 62% pullback . Nothing to get alarmed about and then proceeded to climb up to $147 in 2008 ! Hello SARS BS reasons to weigh down on oil prices ! Go back to your drawing board and invent some other BS !

    They’re just trying to link an event to another in an attempt to “explain” it , LOL ! Wow , wow , wow !

  2. Check this out :

    Quote:

    “The 1.2 Million Bpd Outage That Oil Markets Are Completely Ignoring

    Not an attack on Saudi Aramco facilities; not even the very public U.S. assassination of an Iranian general on Iraqi soil and the prospect of an all-out war will move the needle right now. ”

    LOL ! They must have skipped the article above cause based on the article above the Wuhan coronavirus has an impact on oil prices , LOL !

    Check this one :

    Quote :
    January 22 2020
    “Goldman: China Coronavirus Could Push Oil Down By $3 ”

    ROTFLMAO !

    Goldman must have omitted noticing that the outbreak began in late December 2019 !!!! Since January 8th 2020’s high , WTI Crude has dropped by a little over $10 so far , HELLO $3 ??? LOL !

    Da BS meter has cracked the meter ! Da BS needle is stuck on extreme ! LOL !

  3. While thinking about the snake flu crock aka coronavirus , it just didn’t compute . It didn’t make sense to me . So I looked into it and while I was discovering that it’s supposedly linked to bats , an idea popped in my head about it perhaps being linked to the creation of some sort of biological weapon in a lab somewhere .

    So I looked it up . As I looked up biological weapon I stumbled on a page that stated :

    Quote:
    “Virus-hit Wuhan has two laboratories linked to Chinese bio-warfare program”

    Well would you look at that ! Draw your own conclusion .

    Snake flu ? More like being sold snake oil , LOL !

    What I find even more peculiar is that each time there’s an outbreak of some sort , it always affects animals that humans apparently handle or come in contact with . Then it’s supposedly transmitted from animal to human . I believe it’s the contrary . Humans are screwing up our animals , and as dumb as humans can be , they screw themselves in the process .

    In my humble opinion ……………

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