Oil markets slid for their sixth day over fears about the impact of the coronavirus epidemic, which may have wider reverberations across transportation, tourism and other industries.
Brent crude, the international benchmark fell 0.4 per cent to $59.08 per barrel at 3.04pm UAE time, while West Texas Intermediate dropped 0.3 per cent to $53 per barrel. Brent has fallen nearly 14 per cent over the last three weeks due to the impact of the outbreak in spite of supply outages in Libya.
The coronavirus, which has its origins in the Chinese city of Wuhan has claimed 106 lives so far, with the outbreak known to have spread to Thailand, Japan, South Korea, the US, Australia, France as well as neighbouring Taiwan.
China, the world's largest importer of oil, has implemented emergency measures to contain the spread of the virus, including extending the Chinese lunar new year break, as well as restricting the movements of more than 50 million people across 16 cities, including the epicentre of Wuhan. Flights have been grounded with public transport also coming to a halt.
Domestic travel within China may have declined 40 per cent year-on-year at the beginning of the current holiday period, according to JBC Energy. Swiss bank Julius Baer estimated a 20 per cent disruption to air traffic for a month could reduce Chinese demand for fuel by less than 0.2 per cent.
The oil market, which shook off gains from heightened US-Iran tensions earlier this month, is pricing in a "much broader and longer-lasting economic disruption than comparisons with earlier pandemics suggests," said Norbert Rucker, head of economics and next generation research at Julius Baer.
"The impact on road fuel demand is more difficult to quantify and would likely add a similar reduction," said Mr Rucker, who suggested in a note that there's perhaps some "over-reaction" in the market to the epidemic. The oil markets have remained tight over the last week due to outages in Opec producer Libya.
Opec+, the alliance, implementing production cuts as part of a global pact since the beginning of the year is also likely to consider deeper cuts, Gulf ministers of the alliance suggested earlier this week.
Discussions on a possible emergency meeting "were ongoing", an Opec source told The National.
The group, which also includes producers led by Russia, the world's second-largest crude producer, is set to meet in early March to discuss their current pact of drawing 1.7 million barrels per day from the markets.
With prices plunging below $60 per barrel, Opec+ is likely to be "more unified" going into its next meeting, said Giovanni Staunovo, commodity analyst at UBS.
"If prices would have stayed closer to $70 per barrel for Brent approaching the March meeting, Opec+ might have looked less unified," he said, adding "a nine-month extension of the Opec+ deal until the end of the year is very likely now, if prices stay under further pressure deeper cuts are a real option for me."
On Monday, Saudi Arabia's energy minister Prince Abulaziz bin Salman said Opec+ has the "capability and flexibility" to support market stability if needed.
The UAE, Opec’s third-largest member, as well as non-member Oman also pledged to back Saudi Arabia. UAE energy minister Suhail Al Mazrouei cautioned against “exaggerated projections” relating to the impact on oil demand from the virus outbreak.
