There could be a further $5 a barrel downside for oil prices as a result of the coronavirus, an energy analyst said this week. Both Brent and West Texas Intermediate crudes have suffered losses amid the coronavirus outbreak, but things could still get worse, according to Andy Lipow, president of Lipow Oil Associates.
“I think it could slide even further,” he told CNBC’s “Squawk Box Asia” on Tuesday. “There could be another $5 a barrel downside in this because we simply don’t know the extent of the virus and how long it’s going to last.”
WTI was trading at $49.81 a barrel on Wednesday, down more than 18% since the beginning of 2020. Brent traded at around $54.22 a barrel, having fallen nearly 17% over the same period.
Oil prices have been under pressure following the rapid spread of a novel coronavirus that was first discovered in China. It has killed 490 people in the country and spread internationally over recent weeks. Lipow said Chinese oil demand is “significantly down” and consumption has fallen around 20%, which equates to about 3 million barrels per day. “Any extended period of time where we see this decline in demand is really going to further pressure the oil market,” he said.
When asked if Brent prices can get back to $60 a barrel, Lipow said that may take some time. “I think it can, but it may take a couple of months because this coronavirus eventually will be resolved,” he said. “The market will eventually recover, the Chinese economy will get back to some semblance of normal, but it’s going to take a fair amount of time.”
In the short term, however, Lipow said there’s “little that can be done” by the Organization of the Petroleum Exporting Countries (OPEC), given that a lot of the crude oil has already been sold. Azlin Ahmad, crude oil editor at Argus Media, shared the sentiment.
She said a cut of 500,000 barrels per day “may not do a whole lot” to push up prices in the short term if demand in China continues to slide. “Even if (OPEC) continues to cut, if demand continues to fall, then there’s really not a lot that they can do as producers,” she told CNBC’s “Capital Connection” yesterday.
Still, she said “just the indication” from OPEC that it is ready to act has prevented prices from falling further. “If the aim is to push prices back up, then I think that they would have to make a very big gesture, potentially 1 million barrels per day,” she said.
OPEC and its allies are reportedly considering a production cut of that magnitude to mitigate the steep drop in oil futures.
Source: CNBC.com
