Oil dropped below $60 a barrel for the first time in 2020 after Chinese authorities warned the spread of a deadly coronavirus would accelerate, underscoring concerns of the pathogen’s potential impact on the global travel industry.
Brent crude, the international benchmark, fell as much as 3.3 per cent to $58.68 in Asian trading on Monday, the lowest level in almost three months.
Beijing confirmed on Monday that 80 people had died as a result of the respiratory disease, while 2,744 were infected. The escalating public health crisis prompted the Chinese government to extend the lunar new year holiday by three more days until next week in a bid to contain the coronavirus’s spread.
Investors responded by piling into havens, with gold rising as much as 1.1 per cent to $1,588.68 per ounce. Yields on 10-year US Treasuries, which move inversely to prices, fell four basis points to 1.6408 per cent. Japan’s yen briefly strengthened past ¥109 to the dollar. China’s offshore renminbi exchange rate weakened 0.6 per cent to Rmb6.9664 per dollar.
Japan’s Topix, one of the only major regional stock indices trading on Monday, fell 1.6 per cent. S&P 500 futures were pointing to losses of just over 1 per cent when Wall Street begins trading later in the day. Markets in China and Hong Kong were shut for the lunar new year holiday.
“People are really trying to grapple with ‘how do we hedge our exposure to China when the markets are closed’,” said Andrew Sullivan, Hong Kong-based director at broker Pearl Bridge Partners. “With so few markets open it’s very difficult to get a gauge of what the real sentiment is.”
Iron ore futures, which are tied closely to expectations of China’s economic growth, fell 6.6 per cent to $85 a tonne. US crude marker West Texas Intermediate dropped 2.4 per cent to $52.88.
The drop in oil prices also came despite reports that the US embassy in Iraq had been struck by a rocket attack at the weekend. Saudi Arabia’s energy minister on Sunday sought to downplay the coronavirus’s impact on oil demand.
“Saudi Arabia and other Opec+ producers have the capability and flexibility needed to respond to any developments . . . if the situation so requires,” Prince Abdulaziz bin Salman Al-Saud said in a statement carried by official media.
Worries over the outbreak’s impact on global travel — an important source of demand for crude — outweighed geopolitical tensions in the Middle East, said Stephen Innes, chief Asia market strategist at broker Axicorp.
“Unless there’s a significant impact on the flow of oil out of the Middle East, the geopolitical risk fades quite quickly,” Mr Innes said. But he added, “I’m not sure how much further this [fall] can run . . . We’ve got the haircut priced in mostly from the travel impact from Chinese tourism.”
Ctrip, China’s largest travel-booking website, said on Monday the outbreak had “severely impacted travel plans” in the country. It added that 37 global airlines and 10 hotel brands would offer free refunds to customers who had booked travel and holidays up to early February.