Oil prices drop 4% on demand concerns as virus spreads

LONDON (Reuters) – Oil prices fell 4% on Monday, as the rapid spread of the coronavirus in countries outside China added to investor concerns about the impact on demand.

Global shares also extended losses as worries about the impact of the virus grew, with the number of infections jumping in Iran, Italy and South Korea.

Brent crude was down $2.37, or 4.1%, to $56.13 barrel by 1145 GMT. U.S. crude futures fell by $2.08, or 3.9%, to $51.30.

“The weekend’s developments provided us with a stark reminder that the coronavirus is currently an unstoppable force,” Tamas Varga, an analyst at oil brokerage PVM, said.

South Korea’s fourth-largest city, Daegu, was increasingly isolated as the number of infections there rose rapidly. The country reported its seventh death after raising its infectious disease alert to its highest level.

Italy reported a third death from the flu-like virus and 150 infections.

Meanwhile, Iran said it had confirmed 61 cases and 12 deaths. Afghanistan, Iraq, Kuwait, Saudi Arabia and Turkey imposed travel and immigration curbs on the Islamic Republic.

“We should not underestimate the economic disruption, as a super spreader could trigger a massive drop in business activity around the globe of proportions the world has never dealt with before,” Stephen Innes, chief market strategist at AxiCorp, said in a note.

Oil prices received some support after local health officials in China said on Monday that four provinces had lowered their virus emergency response measures.

Chinese President Xi Jinping said on Sunday the world’s largest energy consumer will adjust policy to help cushion the blow to the economy from the virus outbreak.

Goldman Sachs said commodity prices could fall sharply before Chinese stimulus efforts later this year help the sector achieve its 12-month return forecast of about 10%.

“The promise of stimulus has made commodity markets act like equity markets, building up risks of a sharp correction,” the bank said in a note.

In the United States, the oil rig count rose for a third straight week. Drillers added one oil rig last week, bringing the total count to 679, the highest since the week of Dec. 20, energy services firm Baker Hughes Co said.

However, Bank of America Global Research kept its 2020 forecast for the price of Brent crude steady at $62 a barrel, citing voluntary and involuntary declines in OPEC supply and the resilience of markets to geopolitical shocks.