Oil prices slump as coronavirus outbreak hits demand

The sun sets behind an oil pump in the desert oil fields of Sakhir, Bahrain. OPEC is meeting to consider production cuts as the Coronavirus bites. AP File Pic

Oil prices have slumped on the back of rapidly falling demand as the global economy reels in the wake of the coronavirus outbreak.

While this may mean cheaper petrol at the pump for New Zealanders it is hardly good news.

Chinese demand for oil has slumped by at least 20 per cent in the past few weeks, industry analysts have told Bloomberg news.

That's flowing through to the global oil prices, with benchmark products like West Texas Crude and Brent crude both down by about 18 per cent in the past month.

For New Zealand consumers those falls will initially be offset by a lower Kiwi dollar.

The New Zealand dollar has also been hit hard by virus-related disruption and is off by about 10- per cent this year.

However, oil prices are expected to fall further, with much depending on how quickly oil producers can cut consumption.

OPEC is considering how to respond to the plunge, with Russia signalling for the first time it was open to Saudi Arabia's push for an emergency meeting.

That news prompted a small rally on markets.

However, for now, the next regular meeting on March 5-6 remains on the schedule, a delegate said.

Analysts also noted that OPEC and its partners are already in the midst of steep production cutbacks, with many sceptical about how much more they're willing to do.

The shock to oil demand now looks set to be the biggest since the global financial crisis in 2008.

In July 2008 oil prices hit a record of US$145 per barrel due to enormous demand.
They had plunged to around US$43 per barrel by end of 2008.

Brent had been trading at around US$63 a barrel a month ago. It is now at US$51.

Economists say the longer term impact is impossible to estimate because of the enormous uncertainty about the final scale of the coronavirus outbreak.

Both the SARS outbreak in 2003 and the Swine Flu of 2009 eventually passed without major impacts on global GDP.

However, the shutdown of travel from China to many countries - including the US, Australia and New Zealand - guarantees there will be a slowdown of growth in the current quarter at least.

While noting the uncertainty, Kiwibank economists this morning warned the outbreak looked to be more economically damaging than Sars.

"It's not surprising the virus has spread faster and infected more people in China than SARS. And the potential economic impacts are far greater," chief economist Jarrod Kerr said.

Locally, tourism operators and exporters of fresh premium foods to China have already taken a hit.

Stock markets around the world rattled in the past week.

China's central bank said it would inject more than US$21 billion of liquidity attempt to avert a potential sell-off.

But that did not stop a sell-off in Shanghai, where stocks dropped nine per cent.