There are several kinds of coronavirus found around the world. Some are mild diseases that cause little concern. The coronavirus now ravaging regions of China is a new strain. Its unofficial name is the Wuhan coronavirus. Wuhan is the extensive urban region in China where the disease is causing so much human suffering. While the disease, itself, is a continuing focus of worldwide concern, its aftereffects are only becoming apparent. One of the effects of this outbreak is the drop in the price of crude oil.
China’s Influence Around The World
China has become a significant economic power in a global economic system. When China scales back on anything, this equals a noticeable drop in global demand. With the virus affecting travel, business, schools, and commerce in China, the usually immense demand of Chinese consumers has decreased. When demand for a product drops, the cost for that product usually drops as well. It’s a basic practice in a supply-and-demand marketplace. Oil is no different.
This is especially true as China scales back refinery production, which utilizes foreign oil supplies. Hundreds of thousands of barrels of refined products have been cut within Chinese industries. Some refineries have cut their work by as much as fifty percent.
Its Impact On The Oil Industry
Oil prices dropped quickly in reaction to the reduced demand from China. OPEC and U.S. oil concerns both experienced a price drop per barrel that hasn’t been seen since January of 2019. Concerns within the industry reflect the uncertainty around the virus and its continuing impact on China. These worries also include the transmission of the virus around the world and how that will impact economies. At present, OPEC is cutting its oil production by 500,000 barrels per day to control plunging prices. History shows that whenever oil has dropped below $60 per barrel, the OPEC nations become nervous. Sources report special meetings to discuss the situation among the oil magnates of the Middle East.
The present U.S. response appears less concerned. It shows confidence in the continuing domestic consumption of U.S. commuters and travelers. Time will tell how the coronavirus will ultimately affect Chinese and other global markets across industries.