Oil heads for lowest finish in 14 months as coronavirus keeps market in ‘stranglehold’

Oil futures fell on Thursday, with prices on track to post a fifth consecutive session decline and their lowest finish in more than a year, as worries about the rapid spread of the COVID-19 epidemic outside of China continued to drive markets.

West Texas Intermediate crude for April delivery CLJ20, -5.15%, the U.S. benchmark, fell $2.47, or 5.1%, to $46.26 a barrel on the New York Mercantile Exchange. April Brent crude BRNJ20, -4.06% dropped $2.28, or 4.3%, to $51.15 a barrel on ICE Futures Europe, ahead of the contract’s expiration at Friday’s settlement.

Both front-month contracts were poised to settle at their lowest since December 2018.

“The COVID-19 virus still has the oil market in a stranglehold,” said Carsten Fritsch, commodities analyst at Commerzbank, in a note.

He said weakness in the gasoil market, the European term used for diesel fuel and heating oil, underlined the demand concerns stemming from the spread of the viral outbreak. The gasoil/Brent crack spread at $7 a barrel stands at its lowest since the summer of 2016, he said, noting that the spread typically bottoms out in the summertime for seasonal reasons.

“When the coronavirus brings areas of public life and production to a standstill, this results in significantly lower demand for diesel for transport and production, as well as for kerosene in aviation,” Fritsch said.

“In addition, the winter has been unusually mild, which reduces the demand for heating oil. Refineries are likely to cut their output considerably in response to these developments. This has already happened in China, where there is talk of crude oil processing being reduced by 4 million barrels per day. In turn, the lower demand from refineries is depressing the crude oil price.”

Read COVID-19 case tally: 82,446 cases, 2,808 deaths

“As China’s coronavirus epidemic continues to expand and more countries are affected, the slowdown in global oil and gas consumption this year will hit suppliers who will see average prices fall below previous expectations,” according to Rystad Energy’s revised forecasts released Thursday.

Rystad Energy now forecasts Brent crude oil prices to average about $56 per barrel this year, down from its previous forecast for nearly $60.

In other energy trade, March gasoline RBH20, -4.87% dropped 4.8% to $1.3857 a gallon, while March heating oil HOH20, -3.55% fell 3% to $1.4538 a gallon. The March contracts expire at Friday’s settlement.

April natural gas NGJ20, -4.84% dropped 34.8% to $1.749 per million British thermal units ahead of the Energy Information Administration’s update on supplies of the fuel due shortly.

Analysts polled by S&P Global Platts expect the report, on average to show a decline of 158 billion cubic feet for the week ended Feb. 21.

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