NEW YORK: Oil prices slumped by five per cent on Monday as the rapid spread of the coronavirus in countries outside China added to investor concerns over the effect on demand for crude.

Global equities also extended losses as worries about the impact of the virus grew, with the number of cases jumping in Iran, Italy and South Korea.

Brent crude futures fell $2.96, or 5.1pc, to $55.54 a barrel. US West Texas Intermediate crude futures dropped by $2.58, or 4.8pc, to $50.80 a barrel.

“As the virus spreads globally, additional downside revisions in oil demand for this year may be required,” Jim Ritterbusch, president of Ritter­busch and Associates, said in a note.

“The accelerated sell-off in the stock market has become difficult for the oil market to ignore,” he added.

In afternoon trading, Milan’s stock market was more than five percent lower following reports of a fifth death in Italy amid the COVID-19 epidemic.

In Lombardy, northern Italy, villages have been sealed off and security measures enforced to stem the spread of the disease.

Traders’ screens flashed red elsewhere in Europe too, with Frankfurt falling 4.3pc, London losing 3.9pc, Madrid down 4.1pc and Paris shedding 4.3pc.

As trading began in New York, the Dow Jones index was off by 3.4pc.

Brent oil prices slumped 4.6pc as the burgeoning crisis caused worries about global energy demand.

Conversely, on the London Bullion Market gold spiked to $1,689.31 per ounce, a level last seen in January 2013, before easing back to $1,684.00 as investors snapped up the precious metal as a safety measure amid the market turbulence.

“The root of the problem is this: there is burgeoning fear that the shutdown effect that has hit China’s economy is going to take over elsewhere, dealing another blow to global growth, and earnings growth prospects,” said Patrick O’Hare at Briefing.com.

“Not surprisingly, the (US) Treasury market has been a beneficiary of the risk-off move in stocks. The 10-year note yield is down eight basis points to 1.39pc and flirting with its all-time low yield of 1.36pc seen in July 2016,” he added.

US Treasury bonds are also a popular safe haven investment during economic downturn.

Seoul stocks shed 3.9pc as South Korea announced a surge in coronavirus infections, while Hong Kong erased 1.8pc but Shanghai retreated by only 0.3pc.

Traders last week had been broadly optimistic that the virus — which has killed nearly 2,600 and infected 80,000 — was being contained outside China but a spurt of infections and deaths in other countries including South Korea, Italy and Iran has fanned fears of a global outbreak.

Virus ‘can spread rapidly’

“It would appear the coronavirus has finally caught up with the markets,” OANDA analyst Craig Erlam told AFP.

“As we saw in China, this can spread rapidly and be very difficult to contain.” Travel and tourism linked firms were particularly vulnerable, with Sydney-listed Qantas plunging more than seven percent, and Air China off by nearly six percent in Hong Kong.

“One thing is very clear, travel and tourism in Asia are taking a beating,” analysts at the Dutch bank ING noted.

In Europe, British low-cost airline EasyJet saw its share price crash by more than 15 percent in afternoon trading, while German flag carrier Lufthansa lost more than eight percent in Frankfurt.

South Korea’s fourth-largest city, Daegu, was increasingly isolated as the number of infections there rose rapidly.

Europe’s biggest outbreak is in Italy, which reported a seventh death from the flu-like virus and 220 infections.

Kuwait, Bahrain, Oman and Iraq on Monday recorded their first new coronavirus cases, all involving people who had been in Iran, which raised its toll from the disease to 12 dead and 61 infected.

Afghanistan, Iraq, Kuwait, Saudi Arabia and Turkey imposed travel and immigration curbs on Iran.

“We should not underestimate the economic disruption, as a super spreader could trigger a massive drop in business activity around the globe,” Stephen Innes, chief market strategist at AxiCorp, said in a note.

Still, World Health Organisation chief Tedros Adhanom Ghebreyesus said that using the word “pandemic” did not fit the facts. “We must focus on containment while preparing for a potential pandemic,” he told reporters in Geneva, adding that the world was not witnessing an uncontained spread or large-scale deaths.

On Monday local health officials in China said that four provinces had lowered their virus emergency response measures.

Chinese President Xi Jinping on Sunday said that the world’s largest energy consumer will adjust policy to help to cushion the economic impact from the virus outbreak.

Goldman Sachs said commodity prices could fall sharply before any rebound on the back of Chinese stimulus efforts.

“The promise of stimulus has made commodity markets act like equity markets, building up risks of a sharp correction,” the bank said in a note.

Published in Dawn, February 25th, 2020