Crude oil is currently one of the most volatile trading instruments, its price having been under near-constant pressure since the beginning of 2020. Just today, oil managed to shed 2% of its value - and the day is far from over.
As of this morning, the Brent crude dropped to $52.37, while the WTI brand was trading at $47.76, having fallen below the psychologically important level of $50 per barrel just a few days ago. This is the lowest level oil prices have reached in over a year.
The reason for the drop is the threat of the coronavirus. We have already seen a drop in demand from China, the world’s biggest importer of oil, due to businesses and factories remaining closed or at limited capacity due to the epidemic, as well as due to public transport being disabled in many places in China to limit the spread of the virus. Moreover, many airlines cancelled flights to and from China.
Now that there have been a growing number of cases outside of China - most notably in South Korea, Japan, and Italy, many fear other countries will employ similar measures and also demand less oil than previously anticipated.
As a result, this creates a tight market that is also oversupplied. Despite the best efforts of OPEC+ to curb production, the sudden drop in demand would mean much deeper cuts are required to avoid oversupplying the market.
The Organization of Petroleum Exporting Countries, together with its allied non-member Russia, is going to hold a regular meeting next week, where it will have to decide on a plan to keep oil prices under control.
