Crude oil has crashed into yet another bear market on fears that the coronavirus outbreak will destroy demand in China, the world's largest crude importer.
U.S. oil tumbled another 2.8% on Monday and briefly broke below $50 a barrel for the first time since January 2019. Crude finished at $50.11 a barrel, leaving it down nearly 21% from the recent closing high of $63.27 a barrel on January 6. A bear market is frequently defined as a drop of more than 20% from previous highs.
"There's a lot of fear in the market. And a lot of forced liquidations," said Ryan Fitzmaurice, energy strategist at Rabobank. The coronavirus has alarmed investors because it's spreading rapidly in China, the most important source of demand for energy in the world. China relies on heavy amounts of oil to keep its fast-growing economy humming and to move its enormous population.
"The question is how quickly will the virus get contained, allowing economic activity to resume?" said Ben Cook, portfolio manager at BP Capital Fund.In a worst-case scenario, oil demand is expected to plunge by 2.6 million barrels per day in February and 2 million barrels in March, according to Platts Analytics. Even the best-case scenario by Platts calls for a drop of 900,000 barrels in oil demand for February.
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