Oil prices dropped to its lowest in two weeks during early trading as stock markets around the world witnessed sharp falls, weighed down by concerns about the rapid spread of the coronavirus.
Brent, the most widely-used pricing benchmark, fell 4.6 per cent and was trading at $55.92 per barrel at 6.10pm UAE time on Monday while West Texas Intermediate slid 4.8 per cent at $50.92 per barrel.
Markets across the world also fell as the epidemic risked turning into a pandemic. In the US, the Dow Jones Industrial Average opened 2.8 per cent lower, the S&P500 was 2.6 per cent down and the Nasdaq composite index traded 3 per cent lower shortly after the market opened.
In Asia, South Korea's main market index closed 3.9 per cent lower and Hong Kong's Hang Seng ended 1.8 per cent down, bringing MSCI's broadest index of Asian equities (excluding Japan) down 1.2 per cent.
"Investors are no longer just worried about China’s economic health. The coronavirus has clearly become a global economic threat, with infections spreading to dozens of countries," said Hussein Sayed, chief market strategist at FXTM.
In Europe, the Italian market was trading almost 6 per cent lower and the pan-European Stoxx 600 index was down 4.1 per cent as the UK's FTSE 100 index slipped 3.8 per cent at 6.30pm UAE time.
The coronavirus has so far claimed more than 2,600 lives globally and infected more than 79,400 people. South Korea reported a rise in infections while Oman, Bahrain, Kuwait, Iran and Afghanistan have reported their first cases.
Safe haven assets such as US treasury bonds and gold rallied. Yields on 10-year US treasury bonds fell below 1.4 per cent for the first time in four years and gold prices were edging up towards $1,700 an ounce.
"Technical indicators point that gold is overbought for at least three weeks now, but the risk appetite is so fragile that even sky-high prices don’t discourage capital from feeding into the precious metal," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
However, with virus-related deaths that have no apparent links to China, and Chinese premier Xi Jinping declaring the epidemic the "largest public health emergency" in the country's history, fears are abound the outbreak could transform into a pandemic.
Economists sounded the alarm at the weekend, with the International Monetary Fund's managing director Kristalina Georgieva saying the epidemic had prompted the organisation to revise down its forecast for China's growth to 5.6 per cent from 6 per cent. The world's second-largest economy grew at the slowest pace in three decades last year.
The slide in oil prices comes after a week of gains when markets remained sanguine about the limited impact of the Covid-19 virus on commodities.
"The crude oil price action looks weak because there isn’t enough upward momentum and it is highly likely that the prices may actually drop below the $50 [a barrel] mark once again," said Naeem Aslam, chief market analyst with Avatrade. "The weekly time frame shows more trouble ahead for crude oil, the price failed to touch its 50-day smooth moving average during the recent rally and this confirms that bulls aren’t ready to put all of their money on the table yet."
Opec+ group is set to meet in Vienna on March 5 and 6. Some Opec members reportedly want to deepen cuts by 300,000 barrels per day, even without the support of Russia. The country has been reluctant to back additional cuts without a full assessment of the impact of the virus on the markets.
An Opec+ technical committee recommended retaining the current deal to draw back 1.7 million bpd from the markets until the year-end and making more cuts by 600,000 bpd until the second quarter.